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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2008
Commission File No. 1-12504
THE MACERICH COMPANY
(Exact name of registrant as specified in its charter)
MARYLAND
|
|
95-4448705
|
(State or other jurisdiction of
incorporation or organization)
|
|
(I.R.S. Employer
Identification Number)
|
401 Wilshire Boulevard, Suite 700, Santa Monica, California 90401
(Address of principal executive office, including zip code)
|
(310) 394-6000
(Registrant's telephone number, including area code)
|
N/A
(Former name, former address and former fiscal year, if changed since last report)
|
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding twelve (12) months (or such shorter period that the Registrant was required to file such report) and (2) has been subject to such filing requirements for the past ninety
(90) days.
YES
ý
NO
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer
ý
|
|
Accelerated filer
o
|
|
Non-accelerated filer
o
(Do not check if a smaller reporting company)
|
|
Smaller reporting company
o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES
o
NO
ý
Number of shares outstanding as of May 13, 2008 of the registrant's common stock, par value $.01 per share: 74,744,091 shares
Explanatory Note
In this Quarterly Report on Form 10-Q, The Macerich Company (the "Company") has amended and restated its consolidated financial statements for
the three months ended March 31, 2007.
Subsequent
to the filing of the Company's Annual Report on Form 10-K for the year ended December 31, 2007, management determined that the consolidated financial
statements as of December 31, 2007 and December 31, 2006, and for each of the three years during the period ended December 31, 2007 required restatement to correctly account for
the convertible preferred units issued to prior owners in connection with the acquisition of the Wilmorite portfolio which occurred on April 25, 2005 (See
Note 14"Discontinued Operations" located in the Notes to Consolidated Financial Statements elsewhere in this Quarterly Report for a description of this acquisition).
A
summary of the effects of this restatement on the consolidated balance sheet as of December 31, 2007, the consolidated statements of operations and cash flows for the three
months ended March 31, 2007 and the consolidated statement of common stockholders' equity for the three months ended March 31, 2008, is included in
Note 20"Restatement" located in the Notes to Consolidated Financial Statements elsewhere in this Quarterly Report.
The
following sections of this Quarterly Report give effect to the restatement:
Part I
Item 1
Financial Statements
Item 2
Management's Discussion and Analysis of Financial Condition and Results of Operations
2
THE MACERICH COMPANY
FORM 10-Q
INDEX
Part I
|
|
Financial Information
|
|
|
Item 1.
|
|
Financial Statements
|
|
|
|
|
Consolidated Balance Sheets of the Company as of March 31, 2008 and December 31, 2007 (Restated)
|
|
4
|
|
|
Consolidated Statements of Operations of the Company for the three months ended March 31, 2008 and 2007 (Restated)
|
|
5
|
|
|
Consolidated Statement of Common Stockholders' Equity of the Company for the three months ended March 31, 2008 (Restated)
|
|
6
|
|
|
Consolidated Statements of Cash Flows of the Company for the three months ended March 31, 2008 and 2007 (Restated)
|
|
7
|
|
|
Notes to Consolidated Financial Statements
|
|
9
|
Item 2.
|
|
Management's Discussion and Analysis of Financial Condition and Results of Operations
|
|
37
|
Item 3.
|
|
Quantitative and Qualitative Disclosures About Market Risk
|
|
49
|
Item 4.
|
|
Controls and Procedures
|
|
50
|
Part II
|
|
Other Information
|
|
|
Item 1.
|
|
Legal Proceedings
|
|
51
|
Item 1A.
|
|
Risk Factors
|
|
51
|
Item 2.
|
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
|
51
|
Item 3.
|
|
Defaults Upon Senior Securities
|
|
51
|
Item 4.
|
|
Submission of Matters to a Vote of Security Holders
|
|
51
|
Item 5.
|
|
Other Information
|
|
51
|
Item 6.
|
|
Exhibits
|
|
52
|
Signature
|
|
54
|
3
THE MACERICH COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)
(Unaudited)
|
|
March 31, 2008
|
|
December 31, 2007
|
|
|
|
|
|
(Restated)
|
|
ASSETS:
|
|
|
|
|
|
|
|
Property, net
|
|
$
|
5,938,751
|
|
$
|
6,187,473
|
|
Cash and cash equivalents
|
|
|
64,260
|
|
|
85,273
|
|
Restricted cash
|
|
|
63,689
|
|
|
68,384
|
|
Marketable securities
|
|
|
28,935
|
|
|
29,043
|
|
Tenant and other receivables, net
|
|
|
120,315
|
|
|
137,498
|
|
Deferred charges and other assets, net
|
|
|
300,398
|
|
|
386,802
|
|
Loans to unconsolidated joint ventures
|
|
|
376
|
|
|
604
|
|
Due from affiliates
|
|
|
5,556
|
|
|
5,729
|
|
Investments in unconsolidated joint ventures
|
|
|
1,032,310
|
|
|
785,643
|
|
Assets held for sale
|
|
|
283,603
|
|
|
250,648
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
7,838,193
|
|
$
|
7,937,097
|
|
|
|
|
|
|
|
LIABILITIES, MINORITY INTEREST, PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY:
|
|
|
|
|
|
|
|
Mortgage notes payable:
|
|
|
|
|
|
|
|
|
Related parties
|
|
$
|
224,936
|
|
$
|
225,848
|
|
|
Others
|
|
|
2,799,759
|
|
|
3,102,422
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,024,695
|
|
|
3,328,270
|
|
Bank and other notes payable
|
|
|
2,743,003
|
|
|
2,434,688
|
|
Accounts payable and accrued expenses
|
|
|
71,733
|
|
|
97,086
|
|
Other accrued liabilities
|
|
|
284,653
|
|
|
289,660
|
|
Preferred dividends payable
|
|
|
2,454
|
|
|
6,356
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
6,126,538
|
|
|
6,156,060
|
|
|
|
|
|
|
|
Minority interest
|
|
|
283,623
|
|
|
547,693
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
Series A cumulative convertible redeemable preferred stock, $.01 par value, 3,627,131 shares authorized, 3,067,131 issued and outstanding at March 31, 2008 and December 31, 2007, respectively
|
|
|
83,495
|
|
|
83,495
|
|
|
|
|
|
|
|
Common stockholders' equity:
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value, 145,000,000 shares authorized, 72,530,870 and 72,311,763 shares issued and outstanding at March 31, 2008 and December 31, 2007, respectively
|
|
|
725
|
|
|
723
|
|
|
Additional paid-in capital
|
|
|
1,545,832
|
|
|
1,367,566
|
|
|
Accumulated deficit
|
|
|
(153,896
|
)
|
|
(193,932
|
)
|
|
Accumulated other comprehensive loss
|
|
|
(48,124
|
)
|
|
(24,508
|
)
|
|
|
|
|
|
|
|
|
Total common stockholders' equity
|
|
|
1,344,537
|
|
|
1,149,849
|
|
|
|
|
|
|
|
|
|
Total liabilities, minority interest, preferred stock and common stockholders' equity
|
|
$
|
7,838,193
|
|
$
|
7,937,097
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
4
THE MACERICH COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share and per share amounts)
(Unaudited)
|
|
For the Three Months Ended March 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
(Restated)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Minimum rents
|
|
$
|
125,831
|
|
$
|
112,960
|
|
|
Percentage rents
|
|
|
2,704
|
|
|
3,664
|
|
|
Tenant recoveries
|
|
|
66,389
|
|
|
60,865
|
|
|
Management Companies
|
|
|
9,691
|
|
|
8,754
|
|
|
Other
|
|
|
6,329
|
|
|
6,555
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
210,944
|
|
|
192,798
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Shopping center and operating expenses
|
|
|
68,917
|
|
|
62,016
|
|
|
Management Companies' operating expenses
|
|
|
18,343
|
|
|
17,755
|
|
|
REIT general and administrative expenses
|
|
|
4,403
|
|
|
5,373
|
|
|
Depreciation and amortization
|
|
|
60,707
|
|
|
51,379
|
|
|
|
|
|
|
|
|
|
|
152,370
|
|
|
136,523
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
Related parties
|
|
|
3,696
|
|
|
2,651
|
|
|
|
Other
|
|
|
67,131
|
|
|
61,369
|
|
|
|
|
|
|
|
|
|
|
70,827
|
|
|
64,020
|
|
|
Loss on early extinguishment of debt
|
|
|
|
|
|
878
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
223,197
|
|
|
201,421
|
|
Minority interest in consolidated joint ventures
|
|
|
(526
|
)
|
|
(1,218
|
)
|
Equity in income of unconsolidated joint ventures
|
|
|
22,298
|
|
|
14,483
|
|
Income tax (provision) benefit
|
|
|
(301
|
)
|
|
120
|
|
Gain on sale of assets
|
|
|
674
|
|
|
1,752
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
9,892
|
|
|
6,514
|
|
|
|
|
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
Gain (loss) on sale of assets
|
|
|
99,263
|
|
|
(289
|
)
|
|
Income from discontinued operations
|
|
|
5,525
|
|
|
496
|
|
|
|
|
|
|
|
Total income from discontinued operations
|
|
|
104,788
|
|
|
207
|
|
|
|
|
|
|
|
Income before minority interest and preferred dividends
|
|
|
114,680
|
|
|
6,721
|
|
Less: minority interest in Operating Partnership
|
|
|
16,598
|
|
|
638
|
|
|
|
|
|
|
|
Net income
|
|
|
98,082
|
|
|
6,083
|
|
Less: preferred dividends
|
|
|
2,454
|
|
|
2,575
|
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
$
|
95,628
|
|
$
|
3,508
|
|
|
|
|
|
|
|
Earnings per common sharebasic:
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.09
|
|
$
|
0.05
|
|
|
Discontinued operations
|
|
|
1.23
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
$
|
1.32
|
|
$
|
0.05
|
|
|
|
|
|
|
|
Earnings per common sharediluted:
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.11
|
|
$
|
0.05
|
|
|
Discontinued operations
|
|
|
1.19
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
$
|
1.30
|
|
$
|
0.05
|
|
|
|
|
|
|
|
Weighted average number of common
|
|
|
|
|
|
|
|
|
shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
72,342,000
|
|
|
71,669,000
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
88,290,000
|
|
|
85,034,000
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
5
THE MACERICH COMPANY
CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share data)
(Unaudited)
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
Additional Paid-in Capital
|
|
Accumulated Deficit
|
|
Accumulated Other Comprehensive Loss
|
|
Total Common Stockholders' Equity
|
|
|
|
Shares
|
|
Par Value
|
|
Balance December 31, 2007 (As previously reported)
|
|
72,311,763
|
|
$
|
723
|
|
$
|
1,654,199
|
|
$
|
(317,780
|
)
|
$
|
(24,508
|
)
|
$
|
1,312,634
|
|
Restatement adjustment
|
|
|
|
|
|
|
|
(286,633
|
)
|
|
123,848
|
|
|
|
|
|
(162,785
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 1, 2008 (Restated)
|
|
72,311,763
|
|
|
723
|
|
|
1,367,566
|
|
|
(193,932
|
)
|
|
(24,508
|
)
|
|
1,149,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
98,082
|
|
|
|
|
|
98,082
|
|
|
Reclassification of deferred losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
241
|
|
|
241
|
|
|
Interest rate swap/cap agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,857
|
)
|
|
(23,857
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
98,082
|
|
|
(23,616
|
)
|
|
74,466
|
|
Amortization of share and unit-based plans
|
|
184,107
|
|
|
2
|
|
|
5,155
|
|
|
|
|
|
|
|
|
5,157
|
|
Exercise of stock options
|
|
35,000
|
|
|
|
|
|
890
|
|
|
|
|
|
|
|
|
890
|
|
Distributions paid ($0.80) per share
|
|
|
|
|
|
|
|
|
|
|
(58,046
|
)
|
|
|
|
|
(58,046
|
)
|
Preferred dividends
|
|
|
|
|
|
|
|
(2,454
|
)
|
|
|
|
|
|
|
|
(2,454
|
)
|
Reversal of adjustments to minority interest for the redemption value on the Rochester Properties
|
|
|
|
|
|
|
|
172,805
|
|
|
|
|
|
|
|
|
172,805
|
|
Adjustment to reflect minority interest on a pro rata basis for period end ownership percentage of Operating Partnership units
|
|
|
|
|
|
|
|
1,870
|
|
|
|
|
|
|
|
|
1,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2008
|
|
72,530,870
|
|
$
|
725
|
|
$
|
1,545,832
|
|
$
|
(153,896
|
)
|
$
|
(48,124
|
)
|
$
|
1,344,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
6
THE MACERICH COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
|
|
For the Three Months Ended March 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
(Restated)
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
$
|
95,628
|
|
$
|
3,508
|
|
|
Preferred dividends
|
|
|
2,454
|
|
|
2,575
|
|
|
|
|
|
|
|
|
Net income
|
|
|
98,082
|
|
|
6,083
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
Loss on early extinguishment of debt
|
|
|
|
|
|
878
|
|
|
|
Gain on sale of assets
|
|
|
(674
|
)
|
|
(1,752
|
)
|
|
|
(Gain) loss on sale of assets of discontinued operations
|
|
|
(99,263
|
)
|
|
289
|
|
|
|
Depreciation and amortization
|
|
|
62,860
|
|
|
55,972
|
|
|
|
Amortization of net premium on mortgage and bank and other notes payable
|
|
|
(2,083
|
)
|
|
(2,771
|
)
|
|
|
Amortization of share and unit-based plans
|
|
|
2,886
|
|
|
3,393
|
|
|
|
Minority interest in Operating Partnership
|
|
|
16,598
|
|
|
638
|
|
|
|
Minority interest in consolidated joint ventures
|
|
|
526
|
|
|
5,038
|
|
|
|
Equity in income of unconsolidated joint ventures
|
|
|
(22,298
|
)
|
|
(14,483
|
)
|
|
|
Distributions of income from unconsolidated joint ventures
|
|
|
3,241
|
|
|
285
|
|
|
|
Changes in assets and liabilities, net of acquisitions and dispositions:
|
|
|
|
|
|
|
|
|
|
|
Tenant and other receivables, net
|
|
|
17,244
|
|
|
7,833
|
|
|
|
|
Other assets
|
|
|
(28,805
|
)
|
|
(14,011
|
)
|
|
|
|
Accounts payable and accrued expenses
|
|
|
(26,510
|
)
|
|
(11,211
|
)
|
|
|
|
Due from affiliates
|
|
|
173
|
|
|
(1,357
|
)
|
|
|
|
Other accrued liabilities
|
|
|
13,019
|
|
|
21,470
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
34,996
|
|
|
56,294
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Acquisitions of property, development, redevelopment and property improvements
|
|
|
(127,159
|
)
|
|
(105,618
|
)
|
|
Redemption of Rochester Properties
|
|
|
(18,873
|
)
|
|
|
|
|
Maturities of marketable securities
|
|
|
192
|
|
|
322
|
|
|
Deferred leasing costs
|
|
|
(8,373
|
)
|
|
(8,873
|
)
|
|
Distributions from unconsolidated joint ventures
|
|
|
17,456
|
|
|
42,789
|
|
|
Contributions to unconsolidated joint ventures
|
|
|
(111,521
|
)
|
|
(9,309
|
)
|
|
Repayments of loans to unconsolidated joint ventures
|
|
|
228
|
|
|
165
|
|
|
Proceeds from sale of assets
|
|
|
1,037
|
|
|
5,768
|
|
|
Restricted cash
|
|
|
2,240
|
|
|
(2,351
|
)
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(244,773
|
)
|
|
(77,107
|
)
|
|
|
|
|
|
|
7
THE MACERICH COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in thousands)
(Unaudited)
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from mortgages and bank and other notes payable
|
|
|
346,447
|
|
|
1,172,263
|
|
|
Payments on mortgages and bank and other notes payable
|
|
|
(84,557
|
)
|
|
(1,174,540
|
)
|
|
Deferred financing costs
|
|
|
(79
|
)
|
|
(504
|
)
|
|
Purchase of Capped Calls
|
|
|
|
|
|
(59,850
|
)
|
|
Repurchase of common stock
|
|
|
|
|
|
(74,970
|
)
|
|
Proceeds from share and unit-based plans
|
|
|
890
|
|
|
533
|
|
|
Dividends and distributions
|
|
|
(67,305
|
)
|
|
(57,487
|
)
|
|
Dividends to preferred stockholders
|
|
|
(6,632
|
)
|
|
(6,122
|
)
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
188,764
|
|
|
(200,677
|
)
|
|
|
|
|
|
|
|
Net decrease in cash
|
|
|
(21,013
|
)
|
|
(221,490
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
85,273
|
|
|
269,435
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
64,260
|
|
$
|
47,945
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
Cash payments for interest, net of amounts capitalized
|
|
$
|
82,166
|
|
$
|
81,163
|
|
|
|
|
|
|
|
Non-cash transactions:
|
|
|
|
|
|
|
|
|
Acquisition of minority interest in Non-Rochester Properties in exchange for interest in Rochester Properties
|
|
$
|
205,520
|
|
$
|
|
|
|
|
|
|
|
|
|
Deposits contributed to unconsolidated joint ventures and the purchase of properties
|
|
$
|
51,943
|
|
$
|
|
|
|
|
|
|
|
|
|
Accrued development costs included in accounts payable and accrued expenses and other accrued liabilities
|
|
$
|
50,043
|
|
$
|
23,987
|
|
|
|
|
|
|
|
|
Accrued preferred dividends payable
|
|
$
|
2,454
|
|
$
|
6,356
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
8
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
1. Organization:
The Macerich Company (the "Company") is involved in the acquisition, ownership, development, redevelopment, management and leasing of regional and community
shopping centers (the "Centers") located throughout the United States.
The
Company commenced operations effective with the completion of its initial public offering on March 16, 1994. As of March 31, 2008, the Company was the sole general
partner of and held an 85% ownership interest in The Macerich Partnership, L.P. (the "Operating Partnership"). The interests in the Operating Partnership are known as "OP Units." OP Units not
held by the Company are redeemable, subject to certain restrictions, on a one-for-one basis for the Company's common stock or cash at the Company's option.
The
Company was organized to qualify as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended. The 15% limited partnership interest of the Operating
Partnership not owned by the Company is reflected in these consolidated financial statements as minority interest in the Operating Partnership.
The
property management, leasing and redevelopment of the Company's portfolio is provided by the Company's management companies, Macerich Property Management Company, LLC
("MPMC, LLC"), a single member Delaware limited liability company, Macerich Management Company ("MMC"), a California corporation, Westcor Partners, L.L.C., a single member Arizona limited
liability company, Macerich Westcor Management LLC, a single member Delaware limited liability company, Westcor Partners of Colorado, LLC, a Colorado limited liability company, MACW Mall
Management, Inc., a New York corporation, and MACW Property Management, LLC, a single member New York limited liability company. These last two management companies are collectively
referred to herein as the "Wilmorite Management Companies." The three Westcor management companies are collectively referred to herein as the "Westcor Management Companies." All seven of the
management companies are collectively referred to herein as the "Management Companies."
2. Basis of Presentation:
The accompanying consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles ("GAAP") for
interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They do not include all of the information and
footnotes required by GAAP for complete financial statements and have not been audited by independent public accountants.
The
accompanying consolidated financial statements include the accounts of the Company and the Operating Partnership. Investments in entities that are controlled by the Company or meet
the definition of a variable interest entity in which an enterprise absorbs the majority of the entity's expected losses, receives a majority of the entity's expected residual returns, or both, as a
result of ownership, contractual or other financial interests in the entity are consolidated; otherwise they are accounted for under the equity method and are reflected as "Investments in
unconsolidated joint ventures."
The
unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company's
Annual Report
9
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
2. Basis of Presentation: (Continued)
on
Form 10-K for the year ended December 31, 2007. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation of the consolidated financial statements for the interim periods have been made. The preparation of consolidated financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The accompanying consolidated balance sheet as of December 31, 2007 has
been derived from the audited financial statements, but does not include all disclosures required by GAAP.
All
intercompany accounts and transactions have been eliminated in the consolidated financial statements.
Included in tenant and other receivables are allowances for doubtful accounts of $2,104 and $2,417 at March 31, 2008 and December 31, 2007,
respectively.
Included
in tenant and other receivables are the following notes receivables:
On
March 31, 2006, the Company received a note receivable that is secured by a deed of trust, bears interest at 5.5% and matures on March 31, 2031. At March 31, 2008
and December 31, 2007, the note had a balance of $9,609 and $9,661, respectively.
On
January 1, 2008, as part of the Rochester Redemption (See Note 14Discontinued Operations), the Company received an unsecured note receivable that bears
interest at 9.0% and matures on June 30, 2011. The balance on the note at March 31, 2008 was $11,763.
Recent Accounting Pronouncements:
In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair Value
Measurements." SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. In February 2008, the FASB issued FASB
Staff Position ("FSP") SFAS 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value
Measurements for Purpose of Lease Classification or Measurement under Statement 13 ("FSP FAS 157-1") and FSP SFAS 157-2, Effective Date of SFAS No. 157 ("FSP
FAS 157-2"). FSP FAS 157-2 defers the effective date of SFAS No. 157 for all non-financial assets and non-financial liabilities, except those
that are recognized or disclosed at fair value in the financial statements on a recurring basis. FSP FAS 157-1 excludes from the scope of SFAS No. 157 certain leasing
transactions accounted for under SFAS No. 13, Accounting for Leases. The Company adopted SFAS No. 157 and FSP FAS 157-1 on a prospective basis effective
January 1, 2008. The adoption of SFAS No. 157 and FSP FAS 157-1 did not have a material impact on the Company's results of operations or financial condition.
10
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
2. Basis of Presentation: (Continued)
In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an amendment of FASB Statement
No. 115." SFAS No. 159 permits, at the option of the reporting entity, measurement of certain assets and liabilities at fair value. The Company adopted SFAS No. 159 on
January 1, 2008. The adoption of SFAS No. 159 did not have a material effect on the Company's results of operations or financial condition as the Company did not elect to apply the fair
value option to eligible financial instruments on that date.
In
December 2007, the FASB issued SFAS No. 141 (revised), "Business Combinations." SFAS No. 141(R) requires all assets and assumed liabilities, including contingent
liabilities, in a business combination to be recorded at their acquisition-date fair value rather than at historical costs. The Company is required to adopt SFAS No. 141
(R) on January 1, 2009. The Company is currently evaluating the impact of adoption on the Company's results of operations and financial condition.
In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statementsan amendment to ARB No. 51". SFAS No. 160
clarifies the accounting for a noncontrolling interest or minority interest in a subsidiary included in consolidated financial statements. The Company is required to adopt SFAS No. 160 on
January 1, 2009 and the Company is currently evaluating the impact of the adoption on the Company's results of operations and financial condition.
In
March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging ActivitiesAn Amendment of FASB Statement No. 133." SFAS
No. 161 requires additional disclosures on derivative instruments and hedging activities and their effect on the reporting entities financial statements. The Company is required to adopt SFAS
No. 161 on January 1, 2009 and does not expect the adoption to have a material impact on the Company's results of operations or financial condition.
In
May 2008, the FASB issued FSP APB 14-1 "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)" ("FSP
APB 14-1"). FSP APB 14-1 requires that convertible debt instruments that may be settled in cash to be separated into liability and equity components in a manner that will reflect the
reporting entity's nonconvertible debt borrowing rate. The Company is required to adopt FSP APB 14-1 on January 1, 2009 and is currently evaluating the impact of adoption on the
Company's results of operations or financial condition.
Fair Value of Financial Instruments:
On January 1, 2008, the Company adopted SFAS No. 157, "Fair Value Measurements." SFAS No. 157 defines fair value, establishes a framework for
measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 establishes a fair value hierarchy that distinguishes between market
participant assumptions based on market data obtained from sources independent of the reporting entity and the reporting entity's own assumptions about market participant assumptions.
Level 1
inputs utilize quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than
quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and
liabilities in active markets, as well as inputs that are
11
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
2. Basis of Presentation: (Continued)
observable
for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3
inputs are unobservable inputs for the asset or liability, which is typically based on an entity's own assumptions, as there is little, if any, related market activity. In instances where the
determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement
falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value
measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
The
Company calculates the fair value of financial instruments and includes this additional information in the notes to consolidated financial statements when the fair value is different
than the carrying value of those financial instruments. When the fair value reasonably approximates the carrying value, no additional disclosure is made.
Reclassifications:
Certain prior year amounts have been reclassified to conform to the current year presentation. The Company reclassified loss on early extinguishment of debt to be
included in total expenses in the consolidated statements of operations.
3. Earnings per Share:
The computation of basic earnings per share ("EPS") is based on net income available to common stockholders and the weighted average number of common shares
outstanding for the three months ended March 31, 2008 and 2007. The computation of diluted earnings per share includes the dilutive effect of share and unit-based compensation plans
and convertible senior notes calculated using the treasury stock method and the dilutive effect of all other dilutive securities calculated using the "if-converted" method. The OP Units
and MACWH, LP common units not held by the Company have been included in the diluted EPS calculation since they may be redeemed on a one-for-one basis for
12
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
3. Earnings per Share: (Continued)
common
stock or cash, at the Company's option. The following table reconciles the basic and diluted earnings per share calculation (dollars and shares in thousands):
|
|
For the Three Months Ended March 31,
|
|
|
2008
|
|
2007
|
|
|
Net Income
|
|
Shares
|
|
Per Share
|
|
Net Income
|
|
Shares
|
|
Per Share
|
Net income
|
|
$
|
98,082
|
|
|
|
|
|
|
$
|
6,083
|
|
|
|
|
|
Less: preferred dividends
|
|
|
2,454
|
|
|
|
|
|
|
|
2,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
|
95,628
|
|
72,342
|
|
$
|
1.32
|
|
|
3,508
|
|
71,669
|
|
$
|
0.05
|
Diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of partnership units
|
|
|
16,598
|
|
12,553
|
|
|
|
|
|
638
|
|
13,053
|
|
|
|
Share and unit-based plans(1)
|
|
|
|
|
328
|
|
|
|
|
|
|
|
312
|
|
|
|
Convertible preferred stock(2)
|
|
|
2,454
|
|
3,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
$
|
114,680
|
|
88,290
|
|
$
|
1.30
|
|
$
|
4,146
|
|
85,034
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Diluted
EPS excludes 280,847 of unvested restricted shares of common stock for the three months ended March 31, 2008, as its effect was antidilutive to net income available to
common stockholders. Additionally, the convertible senior notes (See Note 10Bank and Other Notes Payable) are excluded from diluted EPS for the three months ended March 31,
2008 and 2007 as their effect would be antidilutive to net income available to common stockholders.
-
(2)
-
The
convertible preferred stock (See Note 17Cumulative Convertible Redeemable Preferred Stock) can be converted on a one-for-one basis for
common stock. The convertible preferred stock was dilutive to net income available to common stockholders for the three months ended March 31, 2008. The 3,627,131 shares of convertible
preferred stock was excluded from diluted EPS for the three months ended March 31, 2007 as their effect was antidilutive to net income available to common stockholders.
The
minority interest in the Operating Partnership as reflected in the Company's consolidated statements of operations has been allocated for EPS calculations as follows:
|
|
For the Three Months Ended March 31,
|
|
|
|
2008
|
|
2007
|
|
Income from continuing operations
|
|
$
|
1,100
|
|
$
|
606
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
Gain (loss) on sale of assets
|
|
|
14,681
|
|
|
(44
|
)
|
|
Income from discontinued operations
|
|
|
817
|
|
|
76
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
16,598
|
|
$
|
638
|
|
|
|
|
|
|
|
13
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
3. Earnings per Share: (Continued)
The
Company had an 85% ownership interest in the Operating Partnership as of March 31, 2008 and December 31, 2007. The remaining 15% limited partnership interest as of
March 31, 2008 and December 31, 2007 was owned by certain of the Company's executive officers and directors, certain of their affiliates, and other outside investors in the form of OP
Units. The OP Units may be redeemed on a one-for-one basis for common shares or cash, at the Company's option. The redemption value for each OP Unit of the Company as of any
balance sheet date is the amount equal to the average of the closing quoted price per share of the Company's common stock, par value $.01 per share, as reported on the New York Stock Exchange for the
ten trading days immediately preceding the respective balance sheet date. Accordingly, as of March 31, 2008 and December 31, 2007, the aggregate redemption value of the
then-outstanding OP Units not owned by the Company was $859,960 and $904,150, respectively.
4. Investments in Unconsolidated Joint Ventures:
The following are the Company's investments in unconsolidated joint ventures. The Operating Partnership's interest in each joint venture property as of
March 31, 2008 was as follows:
Joint Venture
|
|
Partnership's
Ownership %(1)
|
|
Biltmore Shopping Center Partners LLC
|
|
50.0
|
%
|
Camelback Colonnade SPE LLC
|
|
75.0
|
%
|
Chandler Festival SPE LLC
|
|
50.0
|
%
|
Chandler Gateway SPE LLC
|
|
50.0
|
%
|
Chandler Village Center, LLC
|
|
50.0
|
%
|
Coolidge Holding LLC
|
|
37.5
|
%
|
Corte Madera Village, LLC
|
|
50.1
|
%
|
Desert Sky MallTenants in Common
|
|
50.0
|
%
|
East Mesa Land, L.L.C.
|
|
50.0
|
%
|
East Mesa Mall, L.L.C.Superstition Springs Center
|
|
33.3
|
%
|
Jaren Associates #4
|
|
12.5
|
%
|
Kierland Tower Lofts, LLC
|
|
15.0
|
%
|
Macerich Northwestern Associates
|
|
50.0
|
%
|
Macerich SanTan Phase 2 SPE LLC - SanTan Village Power Center
|
|
34.9
|
%
|
MetroRising AMS Holding LLC
|
|
15.0
|
%
|
New River AssociatesArrowhead Towne Center
|
|
33.3
|
%
|
North Bridge Chicago LLC
|
|
50.0
|
%
|
NorthPark Land Partners, LP
|
|
50.0
|
%
|
NorthPark Partners, LP
|
|
50.0
|
%
|
Pacific Premier Retail Trust
|
|
51.0
|
%
|
PHXAZ/Kierland Commons, L.L.C.
|
|
24.5
|
%
|
Propcor Associates
|
|
25.0
|
%
|
Propcor II Associates, LLCBoulevard Shops
|
|
50.0
|
%
|
Scottsdale Fashion Square Partnership
|
|
50.0
|
%
|
SDG Macerich Properties, L.P.
|
|
50.0
|
%
|
The Market at Estrella Falls LLC
|
|
36.1
|
%
|
14
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
4. Investments in Unconsolidated Joint Ventures: (Continued)
Tysons Corner Holdings LLC
|
|
50.0
|
%
|
Tysons Corner LLC
|
|
50.0
|
%
|
Tysons Corner Property Holdings II LLC
|
|
50.0
|
%
|
Tysons Corner Property Holdings LLC
|
|
50.0
|
%
|
Tysons Corner Property LLC
|
|
50.0
|
%
|
WM Inland, L.L.C.
|
|
50.0
|
%
|
West Acres Development, LLP
|
|
19.0
|
%
|
Westcor/Gilbert, L.L.C.
|
|
50.0
|
%
|
Westcor/Goodyear, L.L.C.
|
|
50.0
|
%
|
Westcor/Queen Creek Commercial LLC
|
|
37.7
|
%
|
Westcor/Queen Creek LLC
|
|
37.7
|
%
|
Westcor/Queen Creek Medical LLC
|
|
37.7
|
%
|
Westcor/Queen Creek Residential LLC
|
|
37.6
|
%
|
Westcor/Surprise Auto Park LLC
|
|
33.3
|
%
|
Westpen Associates
|
|
50.0
|
%
|
WM Ridgmar, L.P.
|
|
50.0
|
%
|
Wilshire BuildingTenants in Common
|
|
30.0
|
%
|
-
(1)
-
The
Operating Partnership's ownership interest in this table reflects its legal ownership interest but may not reflect its economic interest since each joint venture has various
agreements regarding cash flow, profits and losses, allocations, capital requirements and other matters.
The
Company generally accounts for its investments in joint ventures using the equity method of accounting unless the Company has a controlling interest in the joint venture or is the
primary beneficiary in a variable interest entity. Although the Company has a greater than 50% interest in Pacific Premier Retail Trust, Camelback Colonnade SPE LLC and Corte Madera
Village, LLC, the Company shares management control with the partners in these joint ventures and accounts for these joint ventures using the equity method of accounting.
The
Company had the following recent investments in unconsolidated joint venture interests:
On
September 5, 2007, the Company purchased the remaining 50% outside ownership interest in Hilton Village, a 96,546 square foot specialty center in Scottsdale, Arizona. The total
purchase price of $13,500 was funded by cash, borrowings under the Company's line of credit and the assumption of a mortgage note payable. The Center was previously accounted for under the equity
method as an investment in unconsolidated joint ventures.
On
October 25, 2007, the Company purchased a 30% tenants-in-common interest in the Wilshire Building, a 40,000 square foot strip center in Santa Monica,
California. The total purchase price of $27,000 was funded by cash, borrowings under the Company's line of credit and the assumption of an $6,650 mortgage note payable. The results of the Wilshire
Building are included below for the period subsequent to its date of acquisition.
15
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
4. Investments in Unconsolidated Joint Ventures: (Continued)
On
January 10, 2008, the Company in a 50/50 joint venture, acquired The Shops at North Bridge, a 680,933 square foot urban shopping center in Chicago, Illinois, for a total
purchase price of $515,000. The Company's share of the purchase price was funded by the assumption of a pro rata share of the $205,000 fixed rate mortgage on the Center and by borrowings under the
Company's line of credit. The results of The Shops at North Bridge are included below for the period subsequent to its date of acquisition.
Combined
and condensed balance sheets and statements of operations are presented below for all unconsolidated joint ventures.
Combined
and Condensed Balance Sheets of Unconsolidated Joint Ventures:
|
|
March 31,
2008
|
|
December 31,
2007
|
Assets(1):
|
|
|
|
|
|
|
|
Properties, net
|
|
$
|
4,798,599
|
|
$
|
4,294,147
|
|
Other assets
|
|
|
470,035
|
|
|
456,919
|
|
|
|
|
|
|
Total assets
|
|
$
|
5,268,634
|
|
$
|
4,751,066
|
|
|
|
|
|
Liabilities and partners' capital(1):
|
|
|
|
|
|
|
|
Mortgage notes payable(2)
|
|
$
|
4,042,302
|
|
$
|
3,865,593
|
|
Other liabilities
|
|
|
191,621
|
|
|
183,884
|
|
The Company's capital(3)
|
|
|
566,462
|
|
|
401,333
|
|
Outside partners' capital
|
|
|
468,249
|
|
|
300,256
|
|
|
|
|
|
|
Total liabilities and partners' capital
|
|
$
|
5,268,634
|
|
$
|
4,751,066
|
|
|
|
|
|
-
(1)
-
These
amounts include the assets and liabilities of the following significant joint ventures:
|
|
SDG
Macerich
Properties, L.P.
|
|
Pacific
Premier
Retail Trust
|
|
Tysons
Corner
LLC
|
As of March 31, 2008:
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
897,799
|
|
$
|
1,037,320
|
|
$
|
638,583
|
Total Liabilities
|
|
$
|
824,186
|
|
$
|
843,066
|
|
$
|
365,923
|
As of December 31, 2007:
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
904,186
|
|
$
|
1,026,973
|
|
$
|
640,179
|
Total Liabilities
|
|
$
|
826,291
|
|
$
|
842,816
|
|
$
|
364,554
|
-
(2)
-
Certain
joint ventures have debt that could become recourse debt to the Company should the joint venture be unable to discharge the obligations of the related debt. As of
March 31, 2008 and December 31, 2007, the total amount of debt that could become recourse to the Company was $8,655.
-
(3)
-
The
Company's investment in unconsolidated joint ventures was $465,848 and $384,310 more than the underlying equity as reflected in the joint ventures' financial statements as of
March 31, 2008 and December 31, 2007, respectively. This represents the difference between the cost of the investment and the book value of the underlying equity of the joint venture. The
Company is amortizing this difference into income on a straight-line basis, consistent with the lives of the underlying assets. The amortization of this difference was $1,160 and $1,560
for the three months ended March 31, 2008 and 2007, respectively.
16
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
4. Investments in Unconsolidated Joint Ventures: (Continued)
Combined
and Condensed Statements of Operations of Unconsolidated Joint Ventures:
|
|
SDG
Macerich
Properties, L.P.
|
|
Pacific
Premier
Retail Trust
|
|
Tysons
Corner
LLC
|
|
Other
Joint
Ventures
|
|
Total
|
|
Three Months Ended March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents
|
|
$
|
23,201
|
|
$
|
31,949
|
|
$
|
15,094
|
|
$
|
68,209
|
|
$
|
138,453
|
|
|
Percentage rents
|
|
|
930
|
|
|
1,124
|
|
|
453
|
|
|
2,188
|
|
|
4,695
|
|
|
Tenant recoveries
|
|
|
12,427
|
|
|
12,916
|
|
|
9,033
|
|
|
34,398
|
|
|
68,774
|
|
|
Other
|
|
|
1,091
|
|
|
1,099
|
|
|
606
|
|
|
6,122
|
|
|
8,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
37,649
|
|
|
47,088
|
|
|
25,186
|
|
|
110,917
|
|
|
220,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shopping center and operating expenses
|
|
|
14,946
|
|
|
13,137
|
|
|
7,714
|
|
|
39,411
|
|
|
75,208
|
|
|
Interest expense
|
|
|
11,628
|
|
|
11,605
|
|
|
4,116
|
|
|
29,540
|
|
|
56,889
|
|
|
Depreciation and amortization
|
|
|
7,451
|
|
|
7,832
|
|
|
4,622
|
|
|
23,324
|
|
|
43,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
34,025
|
|
|
32,574
|
|
|
16,452
|
|
|
92,275
|
|
|
175,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of assets
|
|
|
|
|
|
|
|
|
|
|
|
8,616
|
|
|
8,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,624
|
|
$
|
14,514
|
|
$
|
8,734
|
|
$
|
27,258
|
|
$
|
54,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company's equity in net income
|
|
$
|
1,812
|
|
$
|
7,385
|
|
$
|
4,367
|
|
$
|
8,734
|
|
$
|
22,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents
|
|
$
|
23,149
|
|
$
|
30,885
|
|
$
|
15,946
|
|
$
|
59,825
|
|
$
|
129,805
|
|
|
Percentage rents
|
|
|
1,213
|
|
|
1,585
|
|
|
(43
|
)
|
|
1,967
|
|
|
4,722
|
|
|
Tenant recoveries
|
|
|
11,961
|
|
|
12,020
|
|
|
8,252
|
|
|
29,514
|
|
|
61,747
|
|
|
Other
|
|
|
941
|
|
|
957
|
|
|
430
|
|
|
3,584
|
|
|
5,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
37,264
|
|
|
45,447
|
|
|
24,585
|
|
|
94,890
|
|
|
202,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shopping center and operating expenses
|
|
|
14,799
|
|
|
12,432
|
|
|
6,250
|
|
|
32,854
|
|
|
66,335
|
|
|
Interest expense
|
|
|
11,470
|
|
|
12,288
|
|
|
4,197
|
|
|
25,640
|
|
|
53,595
|
|
|
Depreciation and amortization
|
|
|
7,263
|
|
|
7,583
|
|
|
5,264
|
|
|
26,068
|
|
|
46,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
33,532
|
|
|
32,303
|
|
|
15,711
|
|
|
84,562
|
|
|
166,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on sale of assets
|
|
|
(4,764
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,764
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(1,032
|
)
|
$
|
13,144
|
|
$
|
8,874
|
|
$
|
10,328
|
|
$
|
31,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company's equity in net (loss) income
|
|
$
|
(516
|
)
|
$
|
6,693
|
|
$
|
3,353
|
|
$
|
4,953
|
|
$
|
14,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant
accounting policies used by the unconsolidated joint ventures are similar to those used by the Company.
17
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
4. Investments in Unconsolidated Joint Ventures: (Continued)
Included
in mortgage notes payable are amounts due to affiliates of Northwestern Mutual Life ("NML") of $124,362 and $125,984 as of March 31, 2008 and
December 31, 2007, respectively. NML is considered a related party because it is a joint venture partner with the Company in Macerich Northwestern Associates. Interest expense incurred on these
borrowings amounted to $2,105 and $2,179 for the three months ended March 31, 2008 and 2007, respectively.
5. Derivative Instruments and Hedging Activities:
The Company recognizes all derivatives in the consolidated financial statements and measures the derivatives at fair value. The Company uses derivative financial
instruments in the normal course of business to manage or reduce its exposure to adverse fluctuations in interest rates. The Company designs its hedges to be effective in reducing the risk exposure
that they are designated to hedge. Any instrument that meets the cash flow hedging criteria in SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," is formally
designated as a cash flow hedge at the inception of the derivative contract. On an ongoing quarterly basis, the Company adjusts its balance sheet to reflect the current fair value of its derivatives.
To the extent they are effective, changes in fair value of derivatives are recorded in comprehensive income. Ineffective portions, if any, are included in net income. No ineffectiveness was recorded
in net income during the three months ended March 31, 2008 or 2007. If any derivative instrument used for risk management does not meet the hedging criteria, it is
marked-to-market each period in the consolidated statements of operations. As of March 31, 2008, four of the Company's derivative instruments were not designated as cash
flow hedges. Changes in the market value of these derivative instruments are recorded in the consolidated statements of operations.
As
of March 31, 2008 and December 31, 2007, the Company had $45 and $286, respectively, reflected in other comprehensive income related to treasury rate locks settled in
prior years. The Company reclassified $241 and $238 for the three months ended March 31, 2008 and 2007, respectively, related to treasury rate lock transactions settled in prior years from
accumulated other comprehensive income to earnings. It is anticipated that the remaining $45 will be reclassified during the remainder of 2008.
Interest
rate swap and cap agreements are purchased by the Company from third parties. Amounts received (paid) as a result of these agreements are recorded as a decrease (increase) to
interest expense. The Company recorded other comprehensive loss of $23,857 and $3,693 related to the marking-to-market of interest rate swap and cap agreements for the three
months ended March 31, 2008 and 2007, respectively. The amount expected to be reclassified to interest expense in the next 12 months is immaterial.
The
fair values of interest rate swap and cap agreements are determined using the market standard methodology of discounting the future expected cash receipts that would occur if
variable interest rates fell below or rose above the strike rate of the interest rate swap and cap agreements. The variable interest rates used in the calculation of projected receipts on the interest
rate swap and cap agreements are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities. To comply with the provisions of SFAS
No. 157, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and
18
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
5. Derivative Instruments and Hedging Activities: (Continued)
the
respective counterparty's nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has
considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.
Although
the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments
associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of
March 31, 2008, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the
credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in
Level 2 of the fair value hierarchy.
The
following table presents the Company's assets and liabilities measured at fair value on a recurring basis as of March 31, 2008:
|
|
Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Significant Unobservable Inputs (Level 3)
|
|
Balance at March 31, 2008
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments
|
|
$
|
|
|
$
|
51,512
|
|
$
|
|
|
$
|
51,512
|
6. Property:
Property consists of the following:
|
|
March 31, 2008
|
|
December 31, 2007
|
|
Land
|
|
$
|
1,050,744
|
|
$
|
1,146,096
|
|
Building improvements
|
|
|
4,778,940
|
|
|
5,121,442
|
|
Tenant improvements
|
|
|
253,979
|
|
|
285,395
|
|
Equipment and furnishings
|
|
|
78,788
|
|
|
83,199
|
|
Construction in progress
|
|
|
623,566
|
|
|
442,670
|
|
|
|
|
|
|
|
|
|
|
6,786,017
|
|
|
7,078,802
|
|
Less accumulated depreciation
|
|
|
(847,266
|
)
|
|
(891,329
|
)
|
|
|
|
|
|
|
|
|
$
|
5,938,751
|
|
$
|
6,187,473
|
|
|
|
|
|
|
|
Depreciation
expense was $47,151 and $38,249 for the three months ended March 31, 2008 and 2007, respectively.
The
Company recognized a gain on sale of land of $674 and $1,719 during the three months ended March 31, 2008 and 2007, respectively. In addition, the Company recognized a gain on
sale of equipment and furnishings of $33 during the three months ended March 31, 2007.
19
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
7. Marketable Securities:
Marketable securities consist of the following:
|
|
March 31, 2008
|
|
December 31, 2007
|
|
Government debt securities, at par value
|
|
$
|
30,352
|
|
$
|
30,544
|
|
Less discount
|
|
|
(1,417
|
)
|
|
(1,501
|
)
|
|
|
|
|
|
|
|
|
|
28,935
|
|
|
29,043
|
|
Unrealized gain
|
|
|
3,334
|
|
|
2,183
|
|
|
|
|
|
|
|
Fair value
|
|
$
|
32,269
|
|
$
|
31,226
|
|
|
|
|
|
|
|
Future contractual maturities of marketable securities at March 31, 2008 are as follows:
|
|
|
|
|
|
|
|
1 year or less
|
|
$
|
1,244
|
|
|
|
|
2 to 5 years
|
|
|
4,060
|
|
|
|
|
6 to 10 years
|
|
|
25,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
30,352
|
|
|
|
|
|
|
|
|
|
|
|
The
proceeds from maturities and interest receipts from the marketable securities are restricted to the service of the $27,518 note on which the Company remains obligated following the
sale of Greeley Mall on July 27, 2006 (See Note 10Bank and Other Notes Payable).
20
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
8. Deferred Charges And Other Assets:
Deferred charges and other assets are summarized as follows:
|
|
March 31,
2008
|
|
December 31,
2007
|
|
Leasing
|
|
$
|
133,261
|
|
$
|
139,343
|
|
Financing
|
|
|
45,953
|
|
|
47,406
|
|
Intangible assets resulting from SFAS No. 141 allocations:
|
|
|
|
|
|
|
|
|
In-place lease values
|
|
|
148,474
|
|
|
201,863
|
|
|
Leasing commissions and legal costs
|
|
|
25,394
|
|
|
35,728
|
|
|
|
|
|
|
|
|
|
|
353,082
|
|
|
424,340
|
|
Less accumulated amortization(1)
|
|
|
(134,626
|
)
|
|
(175,353
|
)
|
|
|
|
|
|
|
|
|
|
218,456
|
|
|
248,987
|
|
Other assets
|
|
|
81,942
|
|
|
137,815
|
|
|
|
|
|
|
|
|
|
$
|
300,398
|
|
$
|
386,802
|
|
|
|
|
|
|
|
-
(1)
-
Accumulated
amortization includes $67,309 and $101,951 relating to intangibles resulting from SFAS No. 141 allocations at March 31, 2008 and December 31, 2007,
respectively.
The
allocated values of above market leases included in deferred charges and other assets, net and the below market leases included in other accrued liabilities, related to SFAS
No. 141, consist of the following:
|
|
March 31,
2008
|
|
December 31,
2007
|
|
Above Market Leases
|
|
|
|
|
|
|
|
Original allocated value
|
|
$
|
65,752
|
|
$
|
65,752
|
|
Less accumulated amortization
|
|
|
(45,503
|
)
|
|
(38,530
|
)
|
|
|
|
|
|
|
|
|
$
|
20,249
|
|
$
|
27,222
|
|
|
|
|
|
|
|
Below Market Leases
|
|
|
|
|
|
|
|
Original allocated value
|
|
$
|
156,667
|
|
$
|
156,667
|
|
Less accumulated amortization
|
|
|
(103,981
|
)
|
|
(93,090
|
)
|
|
|
|
|
|
|
|
|
$
|
52,686
|
|
$
|
63,577
|
|
|
|
|
|
|
|
21
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
9. Mortgage Notes Payable:
Mortgage notes payable consist of the following:
|
|
Carrying Amount of Mortgage Notes(a)
|
|
|
|
|
|
|
|
|
March 31, 2008
|
|
December 31, 2007
|
|
|
|
|
|
|
Property Pledged as Collateral
|
|
Other
|
|
Related Party
|
|
Other
|
|
Related Party
|
|
Interest Rate
|
|
Monthly Payment Term(b)
|
|
Maturity Date
|
Capitola Mall
|
|
$
|
|
|
$
|
38,865
|
|
$
|
|
|
$
|
39,310
|
|
7.13
|
%
|
380
|
|
2011
|
Cactus Power Center(c)
|
|
|
636
|
|
|
|
|
|
|
|
|
|
|
4.15
|
%
|
2
|
|
2011
|
Carmel Plaza
|
|
|
26,141
|
|
|
|
|
|
26,253
|
|
|
|
|
8.18
|
%
|
202
|
|
2009
|
Chandler Fashion Center
|
|
|
168,983
|
|
|
|
|
|
169,789
|
|
|
|
|
5.52
|
%
|
1,043
|
|
2012
|
Chesterfield Towne Center(d)
|
|
|
55,317
|
|
|
|
|
|
55,702
|
|
|
|
|
9.07
|
%
|
548
|
|
2024
|
Danbury Fair Mall
|
|
|
174,821
|
|
|
|
|
|
176,457
|
|
|
|
|
4.64
|
%
|
1,225
|
|
2011
|
Deptford Mall
|
|
|
172,500
|
|
|
|
|
|
172,500
|
|
|
|
|
5.41
|
%
|
778
|
|
2013
|
Eastview Commons(e)
|
|
|
|
|
|
|
|
|
8,814
|
|
|
|
|
5.46
|
%
|
|
|
|
Eastview Mall(e)
|
|
|
|
|
|
|
|
|
101,007
|
|
|
|
|
5.10
|
%
|
|
|
|
Fiesta Mall
|
|
|
84,000
|
|
|
|
|
|
84,000
|
|
|
|
|
4.98
|
%
|
348
|
|
2015
|
Flagstaff Mall
|
|
|
37,000
|
|
|
|
|
|
37,000
|
|
|
|
|
5.03
|
%
|
155
|
|
2015
|
FlatIron Crossing
|
|
|
186,881
|
|
|
|
|
|
187,736
|
|
|
|
|
5.26
|
%
|
1,102
|
|
2013
|
Freehold Raceway Mall
|
|
|
176,196
|
|
|
|
|
|
177,686
|
|
|
|
|
4.68
|
%
|
1,184
|
|
2011
|
Fresno Fashion Fair
|
|
|
63,326
|
|
|
|
|
|
63,590
|
|
|
|
|
6.52
|
%
|
437
|
|
2008
|
Great Northern Mall
|
|
|
40,112
|
|
|
|
|
|
40,285
|
|
|
|
|
5.19
|
%
|
234
|
|
2013
|
Greece Ridge Center(e)
|
|
|
|
|
|
|
|
|
72,000
|
|
|
|
|
5.97
|
%
|
|
|
|
Hilton Village
|
|
|
8,534
|
|
|
|
|
|
8,530
|
|
|
|
|
5.27
|
%
|
37
|
|
2012
|
La Cumbre Plaza(f)
|
|
|
30,000
|
|
|
|
|
|
30,000
|
|
|
|
|
4.20
|
%
|
105
|
|
2008
|
Marketplace Mall(e)
|
|
|
|
|
|
|
|
|
39,345
|
|
|
|
|
5.30
|
%
|
|
|
|
Northridge Mall
|
|
|
80,762
|
|
|
|
|
|
81,121
|
|
|
|
|
4.94
|
%
|
453
|
|
2009
|
Pacific View
|
|
|
88,498
|
|
|
|
|
|
88,857
|
|
|
|
|
7.16
|
%
|
602
|
|
2011
|
Panorama Mall(g)
|
|
|
50,000
|
|
|
|
|
|
50,000
|
|
|
|
|
3.62
|
%
|
151
|
|
2010
|
Paradise Valley Mall
|
|
|
20,993
|
|
|
|
|
|
21,231
|
|
|
|
|
5.89
|
%
|
183
|
|
2009
|
Pittsford Plaza(e)
|
|
|
|
|
|
|
|
|
24,596
|
|
|
|
|
5.02
|
%
|
|
|
|
Pittsford Plaza(e)
|
|
|
|
|
|
|
|
|
9,148
|
|
|
|
|
6.52
|
%
|
|
|
|
Prescott Gateway
|
|
|
60,000
|
|
|
|
|
|
60,000
|
|
|
|
|
5.86
|
%
|
293
|
|
2011
|
Promenade at Casa Grande(h)
|
|
|
88,332
|
|
|
|
|
|
79,964
|
|
|
|
|
5.86
|
%
|
428
|
|
2009
|
Queens Center
|
|
|
90,120
|
|
|
|
|
|
90,519
|
|
|
|
|
7.11
|
%
|
633
|
|
2009
|
Queens Center
|
|
|
108,070
|
|
|
108,071
|
|
|
108,539
|
|
|
108,538
|
|
7.00
|
%
|
1,591
|
|
2013
|
Rimrock Mall
|
|
|
42,664
|
|
|
|
|
|
42,828
|
|
|
|
|
7.56
|
%
|
320
|
|
2011
|
Salisbury, Center at
|
|
|
115,000
|
|
|
|
|
|
115,000
|
|
|
|
|
5.83
|
%
|
559
|
|
2016
|
Santa Monica Place
|
|
|
78,733
|
|
|
|
|
|
79,014
|
|
|
|
|
7.79
|
%
|
606
|
|
2010
|
Shoppingtown Mall
|
|
|
44,244
|
|
|
|
|
|
44,645
|
|
|
|
|
5.01
|
%
|
319
|
|
2011
|
South Plains Mall
|
|
|
58,480
|
|
|
|
|
|
58,732
|
|
|
|
|
8.29
|
%
|
454
|
|
2009
|
South Towne Center
|
|
|
64,000
|
|
|
|
|
|
64,000
|
|
|
|
|
6.66
|
%
|
355
|
|
2008
|
Towne Mall
|
|
|
14,721
|
|
|
|
|
|
14,838
|
|
|
|
|
4.99
|
%
|
100
|
|
2012
|
Tucson La Encantada
|
|
|
|
|
|
78,000
|
|
|
|
|
|
78,000
|
|
5.84
|
%
|
364
|
|
2012
|
Twenty Ninth Street(i)
|
|
|
115,000
|
|
|
|
|
|
110,558
|
|
|
|
|
3.60
|
%
|
345
|
|
2009
|
Valley River Center
|
|
|
120,000
|
|
|
|
|
|
120,000
|
|
|
|
|
5.60
|
%
|
560
|
|
2016
|
Valley View Center
|
|
|
125,000
|
|
|
|
|
|
125,000
|
|
|
|
|
5.81
|
%
|
605
|
|
2011
|
Victor Valley, Mall of(j)
|
|
|
|
|
|
|
|
|
51,211
|
|
|
|
|
4.60
|
%
|
|
|
|
Village Fair North(k)
|
|
|
10,796
|
|
|
|
|
|
10,880
|
|
|
|
|
5.89
|
%
|
82
|
|
2008
|
Vintage Faire Mall
|
|
|
64,130
|
|
|
|
|
|
64,386
|
|
|
|
|
7.91
|
%
|
508
|
|
2010
|
Westside Pavilion
|
|
|
91,649
|
|
|
|
|
|
92,037
|
|
|
|
|
6.74
|
%
|
628
|
|
2008
|
Wilton Mall
|
|
|
44,120
|
|
|
|
|
|
44,624
|
|
|
|
|
4.79
|
%
|
349
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,799,759
|
|
$
|
224,936
|
|
$
|
3,102,422
|
|
$
|
225,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
9. Mortgage Notes Payable: (Continued)
-
(a)
-
The
mortgage notes payable balances include the unamortized debt premiums (discounts). Debt premiums (discounts) represent the excess (deficiency) of the fair value of debt over
(under) the principal value of debt assumed in various acquisitions and are amortized into interest expense over the remaining term of the related debt in a manner that approximates the effective
interest method. The interest rate disclosed represents the effective interest rate, including the debt premium (discount) and deferred finance cost.
Debt
premiums (discounts) consist of the following:
Property Pledged as Collateral
|
|
March 31,
2008
|
|
December 31,
2007
|
|
Danbury Fair Mall
|
|
$
|
12,352
|
|
$
|
13,405
|
|
Eastview Commons
|
|
|
|
|
|
573
|
|
Eastview Mall
|
|
|
|
|
|
1,736
|
|
Freehold Raceway Mall
|
|
|
11,514
|
|
|
12,373
|
|
Great Northern Mall
|
|
|
(157
|
)
|
|
(164
|
)
|
Hilton Village
|
|
|
(66
|
)
|
|
(70
|
)
|
Marketplace Mall
|
|
|
|
|
|
1,650
|
|
Paradise Valley Mall
|
|
|
319
|
|
|
392
|
|
Pittsford Plaza
|
|
|
|
|
|
857
|
|
Shoppingtown Mall
|
|
|
3,461
|
|
|
3,731
|
|
Towne Mall
|
|
|
441
|
|
|
464
|
|
Victor Valley, Mall of
|
|
|
|
|
|
54
|
|
Village Fair North
|
|
|
25
|
|
|
49
|
|
Wilton Mall
|
|
|
2,363
|
|
|
2,729
|
|
|
|
|
|
|
|
|
|
$
|
30,252
|
|
$
|
37,779
|
|
|
|
|
|
|
|
-
(b)
-
This
represents the monthly payment of principal and interest.
-
(c)
-
On
March 20, 2008, the Company obtained a construction loan that provides for borrowings up to $101,000 and bears interest at LIBOR plus a spread of 1.10% to 1.35% depending on
certain conditions. The loan matures on March 14, 2011, with two one-year extension options. At March 31, 2008, the total interest rate was 4.15%.
-
(d)
-
In
addition to monthly principal and interest payments, contingent interest, as defined in the loan agreement, may be due to the extent that 35% of the amount by which the property's
gross receipts exceeds a base amount. Contingent interest expense recognized by the Company was $80 and $78 for the three months ended March 31, 2008 and 2007, respectively.
-
(e)
-
On
January 1, 2008, these loans were transferred in connection with the redemption of the participating convertible preferred units (See Rochester Properties in
Note 14Discontinued Operations).
-
(f)
-
The
floating rate loan bears interest at LIBOR plus 0.88% and matures on August 9, 2008, with a one-year extension option. The Company has an interest rate cap
agreement over the loan term which effectively prevents LIBOR from exceeding 7.12%. At March 31, 2008 and December 31, 2007, the total interest rate was 4.20% and 6.48%, respectively.
-
(g)
-
The
floating rate loan bears interest at LIBOR plus 0.85% and matures in February 2010. There is an interest rate cap agreement on this loan which effectively prevents LIBOR from
exceeding 6.65%. At March 31, 2008 and December 31, 2007, the total interest rate was 3.62% and 6.00%, respectively.
-
(h)
-
The
construction loan allows for total borrowings of up to $110,000, and bears interest at LIBOR plus a spread of 1.20% to 1.40% depending on certain conditions. The loan matures in
August 2009, with two one-year extension options. At March 31, 2008 and December 31, 2007, the total interest rate was 5.86% and 6.35%, respectively.
-
(i)
-
The
construction loan allowed for total borrowings of up to $115,000, and bears interest at LIBOR plus a spread of .80%. The loan matures in June 2009, with a one-year
extension option. At March 31, 2008 and December 31, 2007, the total interest rate was 3.60% and 5.93%, respectively.
-
(j)
-
This
loan was paid off in full on March 1, 2008. On May 6, 2008, the Company placed a new floating rate loan for $100,000 on the property, bearing interest at LIBOR plus
1.60% that matures on May 6, 2011 with two one-year extension options.
-
(k)
-
This
loan was paid off in full on April 16, 2008.
23
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
9. Mortgage Notes Payable: (Continued)
Most of the mortgage loan agreements contain a prepayment penalty provision for the early extinguishment of the debt.
Total
interest expense capitalized was $7,053 and $5,357 for the three months ended March 31, 2008 and 2007, respectively.
The
related party mortgage notes payable are amounts due to an affiliate of NML. See Note 11Related Party Transactions for interest expense associated with these
loans.
The
fair value of mortgage notes payable is estimated to be approximately $3,126,325 and $3,437,032, at March 31, 2008 and December 31, 2007, respectively, based on current
interest rates for comparable loans.
10. Bank and Other Notes Payable:
Bank and other notes payable consist of the following:
Convertible Senior Notes:
On March 16, 2007, the Company issued $950,000 in convertible senior notes ("Senior Notes") that are to mature on March 15, 2012. The Senior Notes
bear interest at 3.25%, payable semiannually, are senior unsecured debt of the Company and are guaranteed by the Operating Partnership. Prior to December 14, 2011, upon the occurrence of
certain specified events, the Senior Notes will be convertible at the option of the holder into cash, shares of the Company's common stock or a combination of cash and shares of the Company's common
stock, at the election of the Company, at an initial conversion rate of 8.9702 shares per $1 principal amount. On and after December 15, 2011, the Senior Notes will be convertible at any time
prior to the second business day preceding the maturity date at the option of the holder at the initial conversion rate. The initial conversion price of
approximately $111.48 per share represented a 20% premium over the closing price of the Company's common stock on March 12, 2007. The initial conversion rate is subject to adjustment under
certain circumstances. Holders of the Senior Notes do not have the right to require the Company to repurchase the Senior Notes prior to maturity except in connection with the occurrence of certain
fundamental change transactions. The carrying value of the Senior Notes at March 31, 2008 and December 31, 2007 includes an unamortized discount of $7,515 and $7,988, respectively,
incurred at issuance and is amortized into interest expense over the term of the Senior Notes in a manner that approximates the effective interest method. As of March 31, 2008 and
December 31, 2007, the effective interest rate was 3.66%. The fair value of the Senior Notes is estimated to be approximately $806,835 and $809,305 at March 31, 2008 and December 31,
2007 based on current market price.
Concurrent
with the issuance of the Senior Notes, the Company purchased two capped calls ("Capped Calls") from affiliates of the initial purchasers of the Senior Notes. The Capped Calls
effectively increased the conversion price of the Senior Notes to approximately $130.06, which represents a 40% premium to the March 12, 2007 closing price of $92.90 per common share of the
Company. The Capped Calls are expected to generally reduce the potential dilution upon exchange of the Senior Notes in the event the market value per share of the Company's common stock, as
24
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
10. Bank and Other Notes Payable: (Continued)
measured
under the terms of the relevant settlement date, is greater than the strike price of the Capped Calls. If, however, the market value per share of the Company's common stock exceeds $130.06
per common share, then the dilution mitigation under the Capped Calls will be capped, which means there would be dilution from exchange of the Senior Notes to the extent that the market value per
share of the Company's common stock exceeds $130.06. The cost of the Capped Calls was approximately $59,850 and was recorded as a charge to additional paid-in capital in 2007.
Line of Credit:
The Company has a $1,500,000 revolving line of credit that matures on April 25, 2010 with a one-year extension option. The interest rate
fluctuates from LIBOR plus 0.75% to LIBOR plus 1.10% depending on the Company's overall leverage. The Company has an interest rate swap agreement that effectively fixed the interest rate on $400,000
of the outstanding balance of the line of credit at 6.23% until April 25, 2011. As of March 31, 2008 and December 31, 2007, borrowings outstanding were $1,323,000 and $1,015,000
at an average interest rate, excluding the $400,000 swapped portion, of 3.72% and 6.19%, respectively.
Term Notes:
On April 25, 2005, the Company obtained a five-year, $450,000 term loan bearing interest at LIBOR plus 1.50%. In November 2005, the Company
entered into an interest rate swap agreement that effectively fixed the interest rate of the term loan at 6.30% from December 1, 2005 to April 25, 2010. As of March 31, 2008 and
December 31, 2007, the entire term loan was outstanding with an effective interest rate of 6.50%.
On
July 27, 2006, concurrent with the sale of Greeley Mall, the Company provided marketable securities to replace Greeley Mall as collateral for the mortgage note payable on the
property (See Note 7Marketable Securities). As a result of this transaction, the debt was reclassified to bank and other notes payable. This note bears interest at an effective
rate of 6.34% and matures in September 2013. As of March 31, 2008 and December 31, 2007, the note had a balance outstanding of $27,518 and $27,676, respectively. The fair value is
estimated to be $29,251 and $29,730 at March 31, 2008 and December 31, 2007, respectively, based on current interest rates on comparable loans.
As
of March 31, 2008 and December 31, 2007, the Company was in compliance with all applicable loan covenants.
25
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
11. Related-Party Transactions:
Certain unconsolidated joint ventures have engaged the Management Companies to manage the operations of the Centers. Under these arrangements, the Management
Companies are reimbursed for compensation paid to on-site employees, leasing agents and project managers at the Centers, as well as insurance costs and other administrative expenses. The
following fees were charged to unconsolidated joint ventures:
|
|
For the Three Months Ended March 31,
|
|
|
2008
|
|
2007
|
Management Fees
|
|
|
|
|
|
|
MMC
|
|
$
|
2,925
|
|
$
|
2,562
|
Westcor Management Companies
|
|
|
1,855
|
|
|
1,603
|
Wilmorite Management Companies
|
|
|
420
|
|
|
428
|
|
|
|
|
|
|
|
$
|
5,200
|
|
$
|
4,593
|
|
|
|
|
|
Development and Leasing Fees
|
|
|
|
|
|
|
MMC
|
|
$
|
99
|
|
$
|
105
|
Westcor Management Companies
|
|
|
1,618
|
|
|
1,676
|
Wilmorite Management Companies
|
|
|
438
|
|
|
28
|
|
|
|
|
|
|
|
$
|
2,155
|
|
$
|
1,809
|
|
|
|
|
|
Certain
mortgage notes on the properties are held by NML (See Note 9Mortgage Notes Payable). Interest expense in connection with these notes was
$3,696 and $2,651 for the three months ended March 31, 2008 and 2007, respectively. Included in accounts payable and accrued expenses is interest payable to these partners of $1,145 and $1,150
at March 31, 2008 and December 31, 2007, respectively.
As
of March 31, 2008 and December 31, 2007, the Company had loans to unconsolidated joint ventures of $376 and $604, respectively. Interest income associated with these
notes was $12 for the three months ended March 31, 2008 and 2007. These loans represent initial funds advanced to development stage projects prior to construction loan funding. Correspondingly,
loan payables in the same amount have been accrued as an obligation by the various joint ventures.
Due
from affiliates of $5,556 and $5,729 at March 31, 2008 and December 31, 2007, respectively, represents unreimbursed costs and fees due from unconsolidated joint
ventures under management agreements.
Certain
Company officers and affiliates have guaranteed mortgages of $21,750 at one of the Company's joint venture properties.
12. Stock Repurchase Program:
On March 16, 2007, the Company repurchased 807,000 shares for $74,970 concurrent with the Senior Notes offering (See Note 10Bank and
Other Notes Payable). These shares were repurchased pursuant to the Company's stock repurchase program authorized by the Company's Board of Directors on March 9, 2007. This repurchase program
ended on March 16, 2007 because the maximum shares allowed to be repurchased under the program was reached.
26
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
13. Acquisitions:
The following acquisitions were recently completed by the Company:
Hilton Village:
On September 5, 2007, the Company purchased the remaining 50% outside ownership interest in Hilton Village, a 96,546 square foot specialty center in
Scottsdale, Arizona. The total purchase price of $13,500 was funded by cash, borrowings under the Company's line of credit and the assumption of a mortgage note payable. The Center was previously
accounted for under the equity method as an investment in unconsolidated joint ventures. The results of Hilton Village's operations have been included in the Company's consolidated financial
statements since the acquisition date.
Mervyn's:
On December 17, 2007, the Company purchased a portfolio of ground leasehold and/or fee simple interests in 39 Mervyn's department stores for $400,160. The
Company purchased an additional ground leasehold interest on January 31, 2008 for $13,182 and a fee simple interest on February 29, 2008 for $19,338. All of the purchased properties are
located in the Southwest United States. The purchase price was funded by cash and borrowings under the Company's line of credit. Concurrent with each acquisition, the Company entered into individual
agreements to leaseback the properties to Mervyn's for terms of 14 to 20 years.
The
purchase price allocation included in the Company's balance sheet date at March 31, 2008 and December 31, 2007 was based on information available at that time.
Subsequent allocations may be made during the remainder of 2008. At acquisition, management identified 29 of the 41 aggregate properties in the portfolio as available for sale. These properties are
located at shopping centers not owned or managed by the Company. The results of operations from these properties have been included in income from discontinued operations since the acquisition date
(See Note 14Discontinued Operations). The results of operations of the 12 Mervyn's properties not designated as assets held for sale have been included in continuing operations of
the Company's consolidated financial statements since the acquisition date.
14. Discontinued Operations:
The following operations were recently disposed or designated as held for sale by the Company:
Mervyn's:
On December 17, 2007, the Company purchased a portfolio of ground leasehold and/or fee simple interests in 39 Mervyn's department stores for $400,160. The
Company purchased an additional ground leasehold interest on January 31, 2008 for $13,182 and a fee simple interest on February 29, 2008 for $19,338. (See
Note 13Acquisitions). Upon closing of these acquisitions, management designated the 29 stores located at shopping centers not owned or managed by the Company in the portfolio as
available for sale. The results of operations from these properties have been included in income from discontinued operations since the respective acquisition dates. The carrying value of these
properties at March 31, 2008 and December 31, 2007 was $283,603 and $250,648, respectively, and has been recorded as assets held for sale.
27
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
14. Discontinued Operations: (Continued)
Rochester Redemption:
On April 25, 2005, the Company and the Operating Partnership acquired Wilmorite Properties, Inc., a Delaware corporation ("Wilmorite"), and Wilmorite
Holdings, L.P., a Delaware limited partnership ("Wilmorite Holdings"). Wilmorite's portfolio included interests in 11 regional malls and two open-air community shopping centers with
13,400,000 square feet of space located in Connecticut, New York, New Jersey, Kentucky and Virginia. The total purchase price was approximately $2,333,333, plus adjustments for working capital,
including the assumption of approximately $877,174 of existing debt with an average interest rate of 6.43% and the issuance of 3,426,609 Class A participating convertible preferred units
("PCPUs") valued at $213,786, 344,625 Class A non-participating convertible preferred units valued at $21,501 and 93,209 common units in Wilmorite Holdings valued at $5,815. The
balance of the consideration to the equity holders of Wilmorite and Wilmorite Holdings was paid in cash, which was provided primarily by a five-year, $450,000 term loan bearing interest at
LIBOR plus 1.50% and a $650,000 acquisition loan which had a term of up to two years and bore interest initially at LIBOR plus 1.60%. An affiliate of the Operating Partnership is the general partner
and, together with other affiliates, owned as of December 31, 2007 approximately 84% of Wilmorite Holdings, with the remaining 16% held by those limited partners of Wilmorite Holdings who
elected to receive convertible preferred units or common units in Wilmorite Holdings rather than cash. These interests represented a minority interest in MACWH LP, a subsidiary of the Operating
Partnership and successor in interest in Wilmorite Holdings, which in turn holds the Wilmorite portfolio, and were recorded at predecessor basis, representing, at acquisition date, a $195,905
reduction from fair value in the balance sheet with the earnings attributable to these interests reported as minority interest in consolidated joint ventures in the consolidated statements of
operations.
On
January 1, 2008, a subsidiary of The Operating Partnership, at the election of the holders, redeemed the 3,426,609 PCPUs. As a result of the redemption, the Company received
the 16.32% minority interest in the portion of the Wilmorite portfolio that included Danbury Fair Mall, Freehold Raceway Mall, Great Northern Mall, Rotterdam Square, Shoppingtown Mall, Towne Mall,
Tysons Corner Center and Wilton Mall, collectively referred to as the "Non-Rochester Properties", including approximately 18,000 in cash held at those properties, for total consideration of $224,393,
in exchange for the Company's ownership interest in the portion of the Wilmorite portfolio that consisted of Eastview Commons, Eastview Mall, Greece Ridge Center, Marketplace Mall and Pittsford Plaza,
collectively referred to as the "Rochester Properties." Included in the redemption consideration was the assumption of the remaining 16.32% interest in the indebtedness of the
Non-Rochester Properties, which had an estimated fair value of $105,962. The Company determined the fair value of the debt using a present value model based upon the terms of equivalent
debt and upon credit spreads made available to the Company. The fair value of the debt consisted of $71,032 of Level 2 inputs and $34,930 of Level 3 inputs in accordance with SFAS
No. 157. The source of the Level 2 inputs involved the use of the nominal weekly average of the U.S. treasury rates. In addition, the Company also received additional consideration of
$11,763, in the form of a note, for certain working capital adjustments, extraordinary capital expenditures, leasing commissions, tenant allowances, and decreases in indebtedness during the Company's
period of ownership of the Rochester Properties. The Company recognized a gain of $99,263 on the exchange based on the difference between the fair value of the
28
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
14. Discontinued Operations: (Continued)
additional
interest acquired in the Non-Rochester Properties and the carrying value of the Rochester Properties, net of minority interest. This exchange is referred herein as the "Rochester
Redemption."
As
a result of the Rochester Redemption, the Company recorded a credit to additional paid-in capital of $172,805 due to the reversal of adjustments to minority interest for the
redemption value on the Rochester Properties over the Company's historical cost. In addition, the Company recorded a step-up in the basis of approximately $218,812 in the remaining portion
of the Non-Rochester Properties.
The
Company has classified the results of operations for the three months ended March 31, 2008 and 2007 for all of the above dispositions as discontinued operations.
The
loss on sale of assets from discontinued operations of $289 for the three months ended March 31, 2007 consisted of additional costs related to properties sold in 2006.
Revenues
and income from discontinued operations were as follows:
|
|
For the Three Months Ended March 31,
|
|
|
|
2008
|
|
2007
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Scottsdale/101
|
|
$
|
10
|
|
$
|
15
|
|
|
Park Lane Mall
|
|
|
|
|
|
12
|
|
|
Holiday Village
|
|
|
338
|
|
|
65
|
|
|
Greeley Mall
|
|
|
|
|
|
(2
|
)
|
|
Great Falls Marketplace
|
|
|
(64
|
)
|
|
|
|
|
Citadel Mall
|
|
|
|
|
|
85
|
|
|
Northwest Arkansas Mall
|
|
|
|
|
|
24
|
|
|
Crossroads Mall
|
|
|
|
|
|
38
|
|
|
Mervyn's
|
|
|
7,698
|
|
|
|
|
|
Rochester Properties
|
|
|
|
|
|
18,873
|
|
|
|
|
|
|
|
|
|
$
|
7,982
|
|
$
|
19,110
|
|
|
|
|
|
|
|
Income from discontinued operations:
|
|
|
|
|
|
|
|
|
Scottsdale/101
|
|
$
|
2
|
|
$
|
2
|
|
|
Park Lane Mall
|
|
|
|
|
|
18
|
|
|
Holiday Village
|
|
|
338
|
|
|
63
|
|
|
Greeley Mall
|
|
|
|
|
|
(7
|
)
|
|
Great Falls Marketplace
|
|
|
(64
|
)
|
|
1
|
|
|
Citadel Mall
|
|
|
|
|
|
60
|
|
|
Northwest Arkansas Mall
|
|
|
|
|
|
5
|
|
|
Crossroads Mall
|
|
|
|
|
|
37
|
|
|
Mervyn's
|
|
|
5,249
|
|
|
|
|
|
Rochester Properties
|
|
|
|
|
|
317
|
|
|
|
|
|
|
|
|
|
$
|
5,525
|
|
$
|
496
|
|
|
|
|
|
|
|
29
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
15. Commitments and Contingencies:
The Company has certain properties that are subject to non-cancelable operating ground leases. The leases expire at various times through 2097,
subject in some cases, to options to extend the terms of the lease. Certain leases provide for contingent rent payments based on a percentage of base rental income as defined in the lease agreements.
Ground rent expense was $1,817 and $867 for the three months ended March 31, 2008 and 2007, respectively. No contingent rent was incurred in either period.
As
of March 31, 2008 and December 31, 2007, the Company was contingently liable for $6,361 in letters of credit guaranteeing performance by the Company of certain
obligations relating to the Centers. The Company does not believe that these letters of credit will result in a liability to the Company. In addition, the Company has a $24,000 letter of credit that
serves as collateral to a liability assumed in the acquisition of Shoppingtown Mall in 2005.
The
Company has entered into a number of construction agreements related to its redevelopment and development activities. Obligations under these agreements are contingent upon the
completion of the services within the guidelines specified in the agreement. At March 31, 2008, the Company had $82,202 in outstanding obligations, which it believes will be settled in the next
twelve months.
16. Share and Unit-Based Plans:
The Company has established share and unit-based compensation plans for the purpose of attracting and retaining executive officers, directors and key
employees. The share-based compensation plans provide for grants of stock awards, stock options, operating partnership units and phantom stock units. In addition, the Company has established an
Employee Stock Purchase Plan to allow employees to purchase the Company's common stock at a discount.
The
Company accounts for its share and unit-based compensation plans in accordance with SFAS No. 123(R), "Share-Based Payment." Under SFAS No. 123(R), an equity
instrument is not recorded to common stockholders' equity until the related compensation expense is recorded over the requisite service period of the award. The Company records compensation cost on a
straight-line basis for awards, excluding the market-indexed awards under the Long-Term Incentive Plan ("LTIP"). Compensation cost for the market-indexed LTIP awards are
recognized under the graded attribution method.
On
March 7, 2008, the Company granted 1,257,134 stock appreciation rights ("SARs") to certain executives of the Company as an additional component of compensation. The SARs vest
on March 15, 2011. Once the SARs have vested, the executive will have up to 10-years from the grant date to exercise the SARs. There is no performance requirement, only a service
condition of continued employment. Upon exercise, the executives will receive unrestricted common shares for the appreciation in value of the SARs from the grant date to the exercise date. The Company
has measured the value of each SAR to be $7.68 as determined using the Black-Scholes Option Pricing Model based upon the following assumptions: volatility of 22.52%, dividend yield of 5.23%, risk free
rate of 3.15%, current value of $61.17 and an expected term of 8 years. The assumptions for volatility and dividend yield were based on the Company's historical experience as a publicly traded
company, the current value was based on the closing price on the date of grant and the risk free rate was based upon the interest rate of the 10-year treasury bond on the date of grant.
30
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
16. Share and Unit-Based Plans: (Continued)
The
following table summarizes the activity of the other non-vested share and unit-based plans:
|
|
LTIP Units
|
|
Stock Awards
|
|
Phantom Stock
|
|
|
Number of Units
|
|
Weighted Average Grant Date Fair Value
|
|
Number of Shares
|
|
Weighted Average Grant Date Fair Value
|
|
Number of Units
|
|
Weighted Average Grant Date Fair Value
|
Balance at January 1, 2008
|
|
187,387
|
|
$
|
55.90
|
|
336,072
|
|
$
|
77.21
|
|
6,419
|
|
$
|
83.86
|
|
Granted
|
|
118,780
|
|
$
|
61.17
|
|
127,273
|
|
$
|
61.17
|
|
1,609
|
|
$
|
62.69
|
|
Vested
|
|
(6,817
|
)
|
$
|
89.21
|
|
(182,498
|
)
|
$
|
70.06
|
|
(2,412
|
)
|
$
|
69.72
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2008
|
|
299,350
|
|
$
|
57.02
|
|
280,847
|
|
$
|
74.58
|
|
5,616
|
|
$
|
83.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following summarizes the compensation cost under share and unit-based plans:
|
|
For the Three Months Ended March 31,
|
|
|
2008
|
|
2007
|
LTIP units
|
|
$
|
1,275
|
|
$
|
1,990
|
Stock awards
|
|
|
3,348
|
|
|
2,767
|
Stock options
|
|
|
148
|
|
|
|
Stock appreciation rights
|
|
|
219
|
|
|
|
Phantom stock units
|
|
|
167
|
|
|
67
|
|
|
|
|
|
|
|
$
|
5,157
|
|
$
|
4,824
|
|
|
|
|
|
The
Company capitalized share and unit-based compensation costs of $2,271 and $1,431 during the three months ended March 31, 2008 and 2007, respectively.
17. Cumulative Convertible Redeemable Preferred Stock:
On February 25, 1998, the Company issued 3,627,131 shares of Series A cumulative convertible redeemable preferred stock ("Series A Preferred
Stock") for proceeds totaling $100,000 in a private placement. The preferred stock can be converted on a one for one basis into common stock and will pay a quarterly dividend equal to the greater of
$0.46 per share, or the dividend then payable on a share of common stock.
No
dividends will be declared or paid on any class of common or other junior stock to the extent that dividends on Series A Preferred Stock have not been declared and/or paid.
The
holders of Series A Preferred Stock have redemption rights if a change in control of the Company occurs, as defined under the Articles Supplementary. Under such circumstances,
the holders of the Series A Preferred Stock are entitled to require the Company to redeem their shares, to the extent the Company has funds legally available therefor, at a price equal to 105%
of its liquidation preference plus accrued and unpaid dividends. The Series A Preferred Stock holder also has the right to require the Company to repurchase its shares if the Company fails to
be taxed as a REIT for federal tax purposes at a price equal to 115% of its liquidation preference plus accrued and unpaid dividends, to the extent funds are legally available therefor.
31
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
17. Cumulative Convertible Redeemable Preferred Stock: (Continued)
On
October 18, 2007, the holder of Series A Preferred Stock converted 560,000 shares to common shares.
The
total liquidation preference as of March 31, 2008 was $84,561.
18. Income Taxes:
The Company elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, commencing with its taxable year ended December 31, 1994. To
qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it distribute at least 90% of its taxable income to its stockholders. It
is management's current intention to adhere to these requirements and maintain the Company's REIT status. As a REIT, the Company generally will not be subject to corporate level federal income tax on
net income it distributes currently to its stockholders. If the Company fails to qualify as a REIT in any taxable year, then it will be subject to federal income taxes at regular corporate rates
(including any applicable alternative minimum tax) and may not be able to qualify as a REIT for four subsequent taxable years. Even if the Company qualifies for taxation as a REIT, the Company may be
subject to certain state and local taxes on its income and property and to federal income and excise taxes on its undistributed taxable income, if any.
Each
partner is taxed individually on its share of partnership income or loss, and accordingly, no provision for federal and state income tax is provided for the Operating Partnership in
the consolidated financial statements.
The
Company has made Taxable REIT Subsidiary elections for all of its corporate subsidiaries other than its Qualified REIT Subsidiaries. The elections, effective for the year beginning
January 1, 2001 and future years, were made pursuant to section 856(l) of the Internal Revenue Code. The Company's Taxable REIT Subsidiaries ("TRSs") are subject to corporate level income taxes which
are provided for in the Company's consolidated financial statements. The Company's primary TRSs include Macerich Management Company and Westcor Partners, L.L.C.
The
income tax (provision) benefit of the TRSs is as follows:
|
|
For the Three Months Ended March 31,
|
|
|
|
2008
|
|
2007
|
|
Current
|
|
$
|
(7
|
)
|
$
|
(9
|
)
|
Deferred
|
|
|
(294
|
)
|
|
129
|
|
|
|
|
|
|
|
Total income tax (provision) benefit
|
|
$
|
(301
|
)
|
$
|
120
|
|
|
|
|
|
|
|
SFAS
No. 109 requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The deferred tax assets and liabilities of the TRSs relate primarily to differences in the
book and tax bases of property and to operating loss carryforwards for
32
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
18. Income Taxes: (Continued)
federal
and state income tax purposes. A valuation allowance for deferred tax assets is provided if the Company believes it is more likely than not that all or some portion of the deferred tax assets
will not be realized. Realization of deferred tax assets is dependent on the Company generating sufficient taxable income in future periods. The net operating loss carryforwards are currently
scheduled to expire through 2028, beginning in 2012. Net deferred tax assets were $12,563 and $12,080 at March 31, 2008 and December 31, 2007 respectively.
The
Company adopted the provisions of FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109," on
January 1, 2007. The adoption of this standard did not have a material impact on the Company's results of operations or financial condition. At the adoption date of January 1, 2007, the
Company had $1,574 of unrecognized tax benefit, all of which would affect the Company's effective tax rate if recognized, and which was recorded as a charge to accumulated deficit. At March 31,
2008, the Company had $2,063 of unrecognized tax benefit. As a result of tax positions taken during the current year, an increase in the unrecognized tax benefit of $157 was included in the Company's
consolidated statements of operations.
The
tax years 2004 to 2007 remain open to examination by the taxing jurisdictions to which the Company is subject. The Company does not expect that the total amount of unrecognized tax
benefit will materially change within the next 12 months.
19. Segment Information:
The Company currently operates in one business segment, the acquisition, ownership, development, redevelopment, management and leasing of regional and community
shopping centers. Additionally, the Company operates in one geographic area, the United States.
20. Restatement:
Subsequent to the filing of the Company's Annual Report on Form 10-K for the year ended December 31, 2007, management determined that
the consolidated financial statements as of December 31, 2007 and December 31, 2006, and for each of the three years during the period ended December 31, 2007 required restatement
to correctly account for the acquisition of Wilmorite and Wilmorite Holdings and the convertible preferred units ("CPU's") issued to prior owners in connection with the acquisition of the Wilmorite
portfolio (see Note 14Discontinued Operations). The Company improperly applied purchase accounting to 100% of the Wilmorite and Wilmorite Holdings acquisition and therefore
minority interests in the Wilmorite portfolio were improperly recorded at fair value at the time of acquisition and presented outside of permanent equity as Class A participating and
non-participating convertible preferred securities in the consolidated balance sheets with the periodic distributions reflected as preferred dividends as a reduction of net income
available to common stockholders within the consolidated statements of operations. Upon further consideration, the Company determined that these interests represent a minority interest in
MACWH LP, which in turn holds the Wilmorite portfolio. Accordingly, the Company should only have applied purchase accounting to the extent of its proportionate interest in MACWH LP. The
Company has corrected the accounting for these interests by recording a reduction in these interests of $195,905 from fair value to predecessor basis in the consolidated balance sheets with the
earnings and dividends paid attributable to these interests reported as minority interests in consolidated joint ventures in the consolidated statements of
33
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
20. Restatement: (Continued)
operations.
The adjustment also includes a reduction in depreciation expense from the 100% stepped up property basis previously reported.
In
addition, because the participating CPU's were redeemable for the Rochester Properties (assets of MACWH LP) at the option of the CPU holders, they are subject to EITF Topic
D-98, "Classification and Measurement of Redeemable Securities" and accounted for as redeemable minority interest at the greater of their redemption value or amount that would result from
applying Accounting Research Bulletin No. 51 "Consolidated Financial Statements" consolidation accounting. The Company recognized the redeemable minority interest at historical cost within
purchase accounting and subsequently adjusted the carrying value of the redeemable minority interest or redemption value changes at the end of each reporting period as a reduction of net income
available to common stockholders within the consolidated statements of operations.
The
restatement resulted in a decrease in property, net and investments in unconsolidated joint ventures of $134,018 and $50,019, respectively, an increase in minority interest of
$208,993 and a decrease in Class A participating and non-participating convertible preferred units of $230,245, a decrease in additional paid-in capital and accumulated
deficit of $210,736 and $47,951, respectively, at December 31, 2007 and an increase in net income available to common stockholders of $942 for the three months ended March 31, 2007.
The
Company also identified other errors related to classification of preferred dividends and classification of the impact for the adoption of FIN 48 within the consolidated
statements of common stockholders' equity. During the years the Company has been in an accumulated deficit position, the preferred dividends should have been classified as a reduction in additional
paid-in capital as opposed to increasing the accumulated deficit. As a result of this error, additional paid-in capital and accumulated deficit were overstated by $77,471 as of
December 31, 2007. The impact of the adoption of FIN 48 should have been classified as an increase to the accumulated deficit as opposed to a decrease to the additional
paid-in capital which resulted in an understatement of $1,574 of accumulated deficit and additional paid-in capital as of December 31, 2007.
The
following is a summary of the impact of the restatement on the financial statements below:
|
|
As Previously Reported
|
|
Restatement Adjustment
|
|
Reclassification Adjustments(1)
|
|
As Restated
|
|
Consolidated Balance Sheet as of December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, net
|
|
$
|
6,321,491
|
|
$
|
(134,018
|
)
|
$
|
|
|
$
|
6,187,473
|
|
Investments in unconsolidated joint ventures
|
|
|
835,662
|
|
|
(50,019
|
)
|
|
|
|
|
785,643
|
|
Total assets
|
|
|
8,121,134
|
|
|
(184,037
|
)
|
|
|
|
|
7,937,097
|
|
Minority interest
|
|
|
338,700
|
|
|
208,993
|
|
|
|
|
|
547,693
|
|
Class A participating convertible preferred units
|
|
|
213,786
|
|
|
(213,786
|
)
|
|
|
|
|
|
|
Class A non-participating convertible preferred units
|
|
|
16,459
|
|
|
(16,459
|
)
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
1,654,199
|
|
|
(286,633
|
)
|
|
|
|
|
1,367,566
|
|
Accumulated deficit
|
|
|
(317,780
|
)
|
|
123,848
|
|
|
|
|
|
(193,932
|
)
|
Total common stockholders' equity
|
|
|
1,312,634
|
|
|
(162,785
|
)
|
|
|
|
|
1,149,849
|
|
Total liabilities, minority interest, preferred stock and common stockholders' equity
|
|
|
8,121,134
|
|
|
(184,037
|
)
|
|
|
|
|
7,937,097
|
|
34
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
20. Restatement: (Continued)
Consolidated Statement of Operations for the three months ended March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents
|
|
|
123,985
|
|
|
|
|
|
(11,025
|
)
|
|
112,960
|
|
|
Percentage rents
|
|
|
3,767
|
|
|
|
|
|
(103
|
)
|
|
3,664
|
|
|
Tenant recoveries
|
|
|
67,654
|
|
|
|
|
|
(6,789
|
)
|
|
60,865
|
|
|
Other
|
|
|
7,511
|
|
|
|
|
|
(956
|
)
|
|
6,555
|
|
Total revenues
|
|
|
211,671
|
|
|
|
|
|
(18,873
|
)
|
|
192,798
|
|
Shopping center and operating expenses
|
|
|
68,622
|
|
|
|
|
|
(6,606
|
)
|
|
62,016
|
|
Depreciation and amortization
|
|
|
57,087
|
|
|
(1,113
|
)
|
|
(4,595
|
)
|
|
51,379
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
64,904
|
|
|
|
|
|
(3,535
|
)
|
|
61,369
|
|
Total expenses
|
|
|
216,392
|
|
|
(1,113
|
)
|
|
(13,858
|
)
|
|
201,421
|
|
Minority interest in consolidated joint ventures
|
|
|
(1,491
|
)
|
|
(3,547
|
)
|
|
3,820
|
|
|
(1,218
|
)
|
Income from continuing operations
|
|
|
9,265
|
|
|
(2,434
|
)
|
|
(317
|
)
|
|
6,514
|
|
Income from discontinued operations
|
|
|
179
|
|
|
|
|
|
317
|
|
|
496
|
|
Total (loss) income from discontinued operations
|
|
|
(110
|
)
|
|
|
|
|
317
|
|
|
207
|
|
Income before minority interest and preferred dividends
|
|
|
9,155
|
|
|
(2,434
|
)
|
|
|
|
|
6,721
|
|
Less: minority interest in Operating Partnership
|
|
|
467
|
|
|
171
|
|
|
|
|
|
638
|
|
Net income
|
|
|
8,688
|
|
|
(2,605
|
)
|
|
|
|
|
6,083
|
|
Less: preferred dividends
|
|
|
6,122
|
|
|
(3,547
|
)
|
|
|
|
|
2,575
|
|
Net income available to common stockholders
|
|
|
2,566
|
|
|
942
|
|
|
|
|
|
3,508
|
|
Earnings per common sharebasic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
0.04
|
|
|
0.01
|
|
|
|
|
|
0.05
|
|
|
Net income available to common stockholders
|
|
|
0.04
|
|
|
0.01
|
|
|
|
|
|
0.05
|
|
Earnings per common sharediluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
0.04
|
|
|
0.01
|
|
|
|
|
|
0.05
|
|
|
Net income available to common stockholders
|
|
|
0.04
|
|
|
0.01
|
|
|
|
|
|
0.05
|
|
Consolidated Statement of Cash Flows for the three months ended March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
|
2,566
|
|
|
942
|
|
|
|
|
|
3,508
|
|
Preferred dividends
|
|
|
6,122
|
|
|
(3,547
|
)
|
|
|
|
|
2,575
|
|
Net income
|
|
|
8,688
|
|
|
(2,605
|
)
|
|
|
|
|
6,083
|
|
Depreciation and amortization
|
|
|
57,085
|
|
|
(1,113
|
)
|
|
|
|
|
55,972
|
|
Minority interest in Operating Partnership
|
|
|
467
|
|
|
171
|
|
|
|
|
|
638
|
|
Minority interest in consolidated joint ventures
|
|
|
1,491
|
|
|
3,547
|
|
|
|
|
|
5,038
|
|
-
(1)
-
Reclassification
adjustments include the reclassification of the results of operations of the Rochester Properties to discontinued operations. In addition, loss on the early
extinguishment of debt has been reclassified to be included in total expenses.
21. Subsequent Events:
On May 1, 2008, the Company declared a dividend/distribution of $0.80 per share for common stockholders, OP Unit holders and Series A Preferred
Stock Holders of record on May 19, 2008. In addition, MACWH, LP declared a distribution of $1.05 for its non-participating convertible preferred unit holders and $0.80 per
unit for its common unit holders of record on May 19, 2008. All dividends/distributions will be paid on June 9, 2008.
35
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
21. Subsequent Events: (Continued)
On
May 6, 2008, the Company placed a $100,000 mortgage note payable on Mall of Victor Valley. The note bears interest at LIBOR plus 1.60% and matures on May 6, 2011 with
two one-year extension options.
On
May 6, 2008, the Company issued 684,000 shares of common stock upon the conversion of 684,000 shares of Series A Preferred Stock, and on May 8, 2008, the Company
issued 1,338,860 shares of common stock upon the conversion of an additional 1,338,860 shares of Series A Preferred Stock.
36
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
IMPORTANT FACTORS RELATED TO FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q of The Macerich Company (the "Company") contains or incorporates statements that constitute forward-looking
statements within the meaning of the federal securities laws. Any statements that do not relate to historical or current facts or matters are forward-looking statements. You can identify some of the
forward-looking statements by the use of forward-looking words, such as "may," "will," "could," "should," "expects," "anticipates," "intends," "projects," "predicts," "plans," "believes," "seeks," and
"estimates" and variations of these words and similar expressions. Statements concerning current conditions may also be forward-looking if they imply a continuation of current conditions.
Forward-looking statements appear in a number of places in this Form 10-Q and include statements regarding, among other matters:
-
-
expectations
regarding the Company's growth;
-
-
the
Company's beliefs regarding its acquisition, redevelopment and development activities and opportunities;
-
-
the
Company's acquisition and other strategies;
-
-
regulatory
matters pertaining to compliance with governmental regulations;
-
-
the
Company's capital expenditure plans and expectations for obtaining capital for expenditures; and
-
-
the
Company's expectations regarding its financial condition or results of operations; and
-
-
the
Company's expected restatement of its financial statements as of December 31, 2007 and December 31, 2006 and for each of the three years during the period
ended December 31, 2007.
Stockholders
are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks, uncertainties and other factors that may cause actual
results, performance or achievements of the Company or the industry to differ materially from the Company's future results, performance or achievements, or those of the industry, expressed or implied
in such forward-looking statements. You are urged to carefully review the disclosures the Company makes concerning risks and other factors that may affect our business and operating results, including
those made in "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2007, as well as our other reports filed with the Securities
and Exchange Commission, which disclosures are incorporated herein by reference. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of
this document. The Company does not intend, and undertakes no obligation, to update any forward-looking information to reflect events or circumstances after the date of this document or to reflect the
occurrence of unanticipated events.
Management's
Discussion and Analysis of Financial Condition and Results of Operations has been updated to reflect the restatement of the consolidated balance sheet as of
December 31, 2007, the consolidated statement of operations and the consolidated statement of cash flows for the three months ended March 31, 2007. For a more detailed description of the
restatement and reclassifications, see Note 20Restatement of the Company's Notes to Consolidated Financial Statements.
Management's Overview and Summary
The Company is involved in the acquisition, ownership, development, redevelopment, management, and leasing of regional and community shopping centers located
throughout the United States. The Company is the sole general partner of, and owns a majority of the ownership interests in, The Macerich Partnership, L.P., a Delaware limited partnership (the
"Operating Partnership"). As of
37
March 31,
2008, the Operating Partnership owned or had an ownership interest in 72 regional shopping centers and 19 community shopping centers aggregating approximately 77 million square feet
of gross leasable area. These 91 regional and community shopping centers are referred to hereinafter as the "Centers," unless the context otherwise requires.
The
property management, leasing and redevelopment of the Company's portfolio is provided by the Company's management companies, Macerich Property Management Company, LLC
("MPMC, LLC"), a single member Delaware limited liability company, Macerich Management Company ("MMC"), a California corporation, Westcor Partners, L.L.C., a single member Arizona limited
liability company, Macerich Westcor Management LLC, a single member Delaware limited liability company, Westcor Partners of Colorado, LLC, a Colorado limited liability company, MACW Mall
Management, Inc., a New York corporation, and MACW Property Management, LLC, a single member New York limited liability company. These last two management companies are collectively
referred to herein as the "Wilmorite Management Companies." The three Westcor management companies are collectively referred to herein as the "Westcor Management Companies." All seven of the
management companies are collectively referred to herein as the "Management Companies."
The
Company is a self-administered and self-managed real estate investment trust ("REIT") and conducts all of its operations through the Operating Partnership and
the Company's Management Companies.
The
following discussion is based primarily on the consolidated financial statements of the Company for the three months ended March 31, 2008 and 2007. This information should be
read in conjunction with the accompanying consolidated financial statements and notes thereto.
Acquisitions and Dispositions:
The financial statements reflect the following acquisitions, dispositions and changes in ownership subsequent to the occurrence of each transaction.
On
September 5, 2007, the Company purchased the remaining 50% outside ownership interest in Hilton Village, a 96,546 square foot specialty center in Scottsdale, Arizona. The total
purchase price of $13.5 million was funded by cash, borrowings under the Company's line of credit and the assumption of an $8.6 million mortgage note payable. The Center was previously
accounted for under the equity method as an investment in unconsolidated joint ventures.
On
December 17, 2007, the Company purchased a portfolio of ground leasehold interest and/or fee simple interests in 39 freestanding Mervyn's stores located in the Southwest United
States. The purchase price of $400.2 million was funded by cash and borrowings under the Company's line of credit. At acquisition, management designated 27 of the freestanding stores located at
shopping centers not owned or managed by the Company as available for sale.
On
January 1, 2008, a subsidiary of The Operating Partnership, at the election of the holders, redeemed the 3,426,609 Class A participating convertible preferred units
("PCPUs"). As a result of the redemption, the Company received the 16.32% minority interest in the portion of the Wilmorite portfolio that included Danbury Fair Mall, Freehold Raceway Mall, Great
Northern Mall, Rotterdam Square, Shoppingtown Mall, Towne Mall, Tysons Corner Center and Wilton Mall, collectively, referred to as the "Non-Rochester Properties," for total consideration of
$224.4 million, in exchange for the Company's ownership interest in the portion of the Wilmorite portfolio that consisted of Eastview Mall, Eastview Commons, Greece Ridge Center, Marketplace
Mall and Pittsford Plaza, collectively referred to as the "Rochester Properties." Included in the redemption consideration was the assumption of the remaining 16.32% interest in the indebtedness of
the Non-Rochester Properties, which had an estimated fair value of $106.0 million. The Company determined the fair value of the debt using a present value model based upon the terms
of equivalent debt and upon credit spreads made available to the Company. The fair value of the debt consisted of $71.1 million of Level 2 inputs and
38
$34.9 million
of Level 3 inputs in accordance with SFAS No. 157. In addition, the Company also received additional consideration of $11.8 million, in the form of a note,
for certain working capital adjustments, extraordinary capital expenditures, leasing commissions, tenant allowances, and decreases in indebtedness during the Company's period of ownership of the
Rochester Properties. The Company recognized a gain of $99.3 million on the exchange. This exchange is referred herein as the "Rochester Redemption."
On
January 10, 2008, the Company in a 50/50 joint venture, acquired The Shops at North Bridge, a 680,933 square foot urban shopping center in Chicago, Illinois, for a total
purchase price of $515 million. The Company's share of the purchase price was funded by the assumption of a pro rata share of the $205 million fixed rate mortgage on the Center and by
borrowings under the Company's line of credit.
On
January 31, 2008, the Company purchased a ground leasehold interest in a freestanding Mervyn's store located in Southland, California. The purchase price of
$13.2 million was funded by cash and
borrowings under the Company's line of credit. At acquisition, management designated the property as available for sale.
On
February 29, 2008, the Company purchased a fee simple interest in a freestanding Mervyn's store located in Monrovia, California. The purchase price of $19.3 million was
funded by cash and borrowings under the Company's line of credit. At acquisition, management designated the property as available for sale.
Hilton
Village and the 12 Mervyn's freestanding stores that have not been designated as available for sale are referred herein as the "2007 Acquisition Properties."
Redevelopment:
The expansion of The Oaks, a 1.1 million square-foot super regional mall in Thousand Oaks, California, continues on schedule toward a
multi-phased opening beginning with a 138,000-square-foot Nordstrom Department Store estimated to open in Fall 2008. Construction on the two-level,
open-air retail, dining and entertainment venue, and a complete interior renovation continues. New additions to the Center's interior retail lineup include the
first-to-markets Bare Escentuals, Fruits and Passions, kate spade, Marciano and Teavana.
On
April 17, 2008, the Company marked the construction start of an expansive redevelopment of Santa Monica Place. Plans for the property are expected to transform the Center into
an open-air shopping and dining destination. The Center closed for redevelopment on January 31, 2008 and is projected to re-open in Fall 2009.
Construction
of the underground parking structure for the first phase of a new luxury wing at Scottsdale Fashion Square began in early 2008. Anchored by a
first-to-market 60,000-square-foot Barneys New York, the expansion will introduce up to 110,000 square feet of luxury shops and restaurants and is
expected to begin opening in Fall 2009. New tenants that opened during the three months ended March 31, 2008 include Bottega Veneta, Jimmy Choo and Marciano.
Construction
on The Market at Estrella Falls, the power center phase of a 330-acre mixed-use development is underway. The
500,000-square-foot power center will begin opening in phases in Fall 2008. Old Navy joins previously announced large-format retailers Bashas', Staples, Shoe Pavilion, Razmataz
and Petco. The project's future phases include a department-store anchored super regional
shopping center and additional parcels for commercial and potential mixed-use opportunities.
Inflation:
In the last three years, inflation has not had a significant impact on the Company because of a relatively low inflation rate. Most of the leases at the Centers
have rent adjustments periodically
39
through
the lease term. These rent increases are either in fixed increments or based on using an annual multiple of increases in the Consumer Price Index ("CPI"). In addition, about 6%-13%
of the leases expire each year, which enables the Company to replace existing leases with new leases at higher base rents if the rents of the existing leases are below the then existing market rate.
Additionally, historically the majority of the leases required the tenants to pay their pro rata share of operating expenses. In January 2005, the Company began entering into leases that require
tenants to pay a stated amount for operating expenses, generally excluding property taxes, regardless of the expenses actually incurred at any Center. This change shifts the burden of cost control to
the Company.
Seasonality:
The shopping center industry is seasonal in nature, particularly in the fourth quarter during the holiday season when retailer occupancy and retail sales are
typically at their highest levels. In addition, shopping malls achieve a substantial portion of their specialty (temporary retailer) rents during the holiday season and the majority of percentage rent
is recognized in the fourth quarter. As a result of the above, earnings are generally higher in the fourth quarter.
Critical Accounting Policies
The preparation of financial statements in conformity with generally accepted accounting principles ("GAAP") in the United States of America requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Some
of these estimates and assumptions include judgments on revenue recognition, estimates for common area maintenance and real estate tax accruals, provisions for uncollectible
accounts, impairment of long-lived assets, the allocation of purchase price between tangible and intangible assets, and estimates for environmental matters. The Company's significant
accounting policies are described in more detail in Note 2 to the Consolidated Financial Statements. However, the following policies are deemed to be critical.
Revenue Recognition:
Minimum rental revenues are recognized on a straight-line basis over the term of the related lease. The difference between the amount of rent due in a
year and the amount recorded as rental income is referred to as the "straight line rent adjustment." Currently, 53% of the mall and freestanding leases contain provisions for CPI rent increases
periodically throughout the term of the lease. The Company believes that using an annual multiple of CPI increases, rather than fixed contractual rent increases, results in revenue recognition that
more closely matches the cash revenue from each lease and will provide more consistent rent growth throughout the term of the leases. Percentage rents are recognized when the tenants' specified sales
targets have been met. Estimated recoveries from certain tenants for their pro rata share of real estate taxes, insurance and other shopping center operating expenses are recognized as revenues in the
period the applicable expenses are incurred. Other tenants pay a fixed rate and these tenants recoveries' revenues are recognized on a straight-line basis over the term of the related
leases.
Property:
The Company capitalizes costs incurred in redevelopment and development of properties in accordance with Statement of Financial Accounting Standards ("SFAS")
No. 34 "Capitalization of Interest Cost" and SFAS No. 67 "Accounting for Costs and the Initial Rental Operations of Real Estate Properties." The costs of land and building under
development include specifically identifiable costs. The capitalized costs include pre-construction costs essential to the development of the property,
40
developments
costs, construction costs, interest costs, real estate taxes, salaries and related costs and other costs incurred during the period of development. Capitalized costs are allocated to the
specific components of a project that are benefited. The Company considers a construction project as completed and held available for occupancy and ceases capitalization of costs when the areas under
development have been substantially completed.
Maintenance
and repairs expenses are charged to operations as incurred. Costs for major replacements and betterments, which includes HVAC equipment, roofs and parking lots are
capitalized and
depreciated over their estimated useful lives. Gains and losses are recognized upon disposal or retirement of the related assets and are reflected in earnings.
Property
is recorded at cost and is depreciated using a straight-line method over the estimated useful lives of the assets as follows:
Buildings and improvements
|
|
5 - 40 years
|
Tenant improvements
|
|
5 - 7 years
|
Equipment and furnishings
|
|
5 - 7 years
|
Accounting for Acquisitions:
The Company accounts for all acquisitions in accordance with SFAS No. 141, "Business Combinations." The Company first determines the value of the land and
buildings utilizing an "as if vacant" methodology. The Company then assigns a fair value to any debt assumed at acquisition. The balance of the purchase price is allocated to tenant improvements and
identifiable intangible assets or liabilities. Tenant improvements represent the tangible assets associated with the existing leases valued on a fair market value basis at the acquisition date
prorated over the remaining lease terms. The tenant improvements are classified as an asset under real estate investments and are depreciated over the remaining lease terms. Identifiable intangible
assets and liabilities relate to the value of in-place operating leases which come in three forms: (i) leasing commissions and legal costs, which represent the value associated with "cost
avoidance" of acquiring in-place leases, such as lease commissions paid under terms generally experienced in the Company's markets; (ii) value of in-place leases, which
represents the estimated loss of revenue and of costs incurred for the period required to lease the "assumed vacant" property to the occupancy level when purchased; and (iii) above or below market
value of in-place leases, which represents the difference between the contractual rents and market rents at the time of the acquisition, discounted for tenant credit risks. Leasing
commissions and legal costs are recorded in deferred charges and other assets and are amortized over the remaining lease terms. The value of in-place leases are recorded in deferred
charges and other assets and amortized over the remaining lease terms plus an estimate of renewal of the acquired leases. Above or below market leases are classified in deferred charges and other
assets or in other accrued liabilities, depending on whether the contractual terms are above or below market, and the asset or liability is amortized to minimum rents over the remaining terms of the
leases.
When
the Company acquires a real estate property, the Company allocates the purchase price to the components of these acquisitions using relative fair values computed using its estimates
and assumptions. These estimates and assumptions impact the amount of costs allocated between various components as well as the amount of costs assigned to individual properties in multiple property
acquisitions. These allocations also impact depreciation expense and gains or loses recorded on future sales of properties.
Asset Impairment:
The Company assesses whether there has been impairment in the value of its long-lived assets by considering factors such as expected future operating
income, trends and prospects, as well as the effects of demand, competition and other economic factors. Such factors include the tenant's ability to
41
perform
their duties and pay rent under the terms of the leases. The Company may recognize impairment losses if the discounted cash flows are not sufficient to cover its investment. Such a loss would
be determined as the difference between the carrying value and the fair value of a Center.
Deferred Charges:
Costs relating to obtaining tenant leases are deferred and amortized over the initial term of the agreement using the straight-line method. Costs
relating to financing of shopping center properties are deferred and amortized over the life of the related loan using the straight-line method, which approximates the effective interest
method. In-place lease values are amortized over the remaining lease term plus an estimate of renewal. Leasing commissions and legal costs are amortized on a straight-line
basis over the individual remaining lease years. The ranges of the terms of the agreements are as follows:
Deferred lease costs
|
|
1 - 15 years
|
Deferred financing costs
|
|
1 - 15 years
|
In-place lease values
|
|
Remaining lease term plus an estimate for renewal
|
Leasing commissions and legal costs
|
|
5 - 10 years
|
Results of Operations
Many of the variations in the results of operations, discussed below, occurred due to the transactions described above including the 2007 Acquisition Properties
and the Redevelopment Centers. For the comparison of the three months ended March 31, 2008 to the three months ended March 31, 2007, the "Same Centers" include all consolidated Centers,
excluding the 2007 Acquisition Properties and the Redevelopment Centers. The Redevelopment Centers include The Oaks, Santa Monica Place, Westside Pavilion, The Marketplace at Flagstaff, SanTan Village
Regional Center and Promenade at Casa Grande.
Comparison of the Three Months Ended March 31, 2008 and 2007
Revenues:
Minimum and percentage rents (collectively referred to as "rental revenue") increased by $11.9 million, or 10.2%, from 2007 to 2008. The increase in rental
revenue is attributed to an increase of $5.1 million from the Same Centers, $3.4 million from the Redevelopment Centers and $3.4 million from the 2007 Acquisition Properties.
Rental
revenue includes the amortization of above and below market leases, the amortization of straight-line rents and lease termination income. The amortization of above and
below
market leases increased from $3.2 million in 2007 to $3.5 million in 2008. The amortization of straight-lined rents increased from $1.3 million in 2007 to $1.5 million in
2008. Lease termination income decreased from $2.2 million in 2007 to $2.0 million in 2008.
Tenant
recoveries increased $5.5 million, or 9.0%, from 2007 to 2008. The increase in tenant recoveries is attributed to an increase of $3.6 million from the Same Centers,
$1.2 million from the Redevelopment Centers and $0.7 million from the 2007 Acquisition Properties.
Management
Companies' revenues increased by $0.9 million from 2007 to 2008, primarily due to increased management fees received from the joint venture Centers, additional third
party management contracts and increased development fees from joint ventures.
42
Shopping Center and Operating Expenses:
Shopping center and operating expenses increased $6.9 million, or 11.1%, from 2007 to 2008. Approximately $4.6 million of the increase in shopping
center and operating expenses is from the Same Centers, $1.6 million is from the Redevelopment Centers and $0.9 million is from the 2007 Acquisition Properties.
Management Companies' Operating Expenses:
Management Companies' operating expenses increased to $18.3 million in 2008 from $17.8 million in 2007, in part as a result of the additional costs
of managing the joint venture Centers and third party managed properties, higher compensation expense due to increased staffing and higher professional fees.
REIT General and Administrative Expenses:
REIT general and administrative expenses decreased by $1.0 million from 2007 to 2008. The decrease is primarily due to a decrease in share and
unit-based compensation expense in 2008.
Depreciation and Amortization:
Depreciation and amortization increased $9.3 million from 2007 to 2008. The increase in depreciation and amortization is primarily attributed to an
increase of $3.8 million at the Redevelopment Centers, $3.5 million at the Same Centers and $1.9 million at the 2007 Acquisition Properties.
Interest Expense:
Interest expense increased $6.8 million from 2007 to 2008. The increase in interest expense was primarily attributed to an increase of $7.4 million
from convertible senior notes issued on March 16, 2007, $2.9 million from the line of credit and $2.0 million from the Same Centers. The increase in interest expense was offset in
part by a decrease of $3.5 million from term loans and $1.7 million from the Redevelopment Centers.
The
increase in interest on the line of credit was due to an increase in average outstanding borrowings during 2008, in part, because of the purchase of The Shops at North Bridge and
Mervyn's, offset in part by lower LIBOR rates and spreads. The decrease in interest on term loans was due to the repayment of the $250 million loan in 2007.
The
above interest expense items are net of capitalized interest, which increased from $5.4 million in 2007 to $7.1 million in 2008 due to an increase in redevelopment
activity in 2008.
Loss on Early Extinguishment of Debt:
The Company recorded a $0.9 million loss from the early extinguishment of the $250 million term loan in 2007.
Equity in Income of Unconsolidated Joint Ventures:
The equity in income of unconsolidated joint ventures increased $7.8 million from 2007 to 2008. The increase in equity in income of unconsolidated joint
ventures is due in part to a $2.0 million loss on sale of assets at the SDG Macerich Properties, L.P. in 2007, the gain on sale of assets at Kierland Tower Lofts, LLC in 2008 and
the acquisition of The Shops at North Bridge in 2008.
43
Gain on Sale of Assets:
The Company recorded a gain on sale of land of $0.7 million in 2008 and $1.8 million in 2007.
Discontinued Operations:
Income from discontinued operations increased $104.6 million from 2007 to 2008. The increase is primarily due to the $99.3 million gain from the
Rochester Redemption in 2008. In addition, $5.2 million is attributed to the acquisition and designation of 29 freestanding Mervyn's stores as held for sale in 2008, offset in part by
$2.9 million relating to the Rochester Redemption. See "Management's Overview and SummaryAcquisitions and Dispositions." As result of the designation of the Mervyn's properties as
held for sale and the Rochester Redemption, the Company classified the results of operations for these properties to discontinued operations for both periods presented.
Minority Interest in the Operating Partnership:
The minority interest in the Operating Partnership represents the 14.8% weighted average interest of the Operating Partnership not owned by the Company during
2008 compared to the 15.4% not owned by the Company during 2007. The decrease in minority interest is primarily attributed to the conversion of partnership units and preferred shares into common
shares in 2007 (See Note 17Cumulative Convertible Redeemable Preferred Stock of the Company's Consolidated Financial Statements) and the repurchase of 807,000 shares in 2007 (See
Note 12Stock Repurchase Program of the Company's Consolidated Financial Statements).
Funds From Operations:
Primarily as a result of the factors mentioned above, funds from operations ("FFO")diluted increased 12.9% from $85.1 million in 2007 to $96.0
million in 2008. For the reconciliation of FFO and FFOdiluted to net income available to common stockholders, see "Funds from Operations" below.
Operating Activities:
Cash flows provided by operations decreased from $56.3 million in 2007 to $35.0 million in 2008. The decrease was primarily due to changes in assets and
liabilities in 2007 compared to 2008 and due to the results at the Centers as discussed above.
Investing Activities:
Cash used in investing activities increased from $77.1 million in 2007 to $244.8 million in 2008. The increase in cash used in investing activities
was primarily due to a $102.2 million increase in contributions to unconsolidated joint ventures, a $25.3 million decrease in distributions from unconsolidated joint ventures and a
$21.5 million increase in capital expenditures. The increase in contributions to unconsolidated joint ventures was attributed to the Company's pro rata share of the purchase of The Shops at
North Bridge (See "Management's Overview and SummaryAcquisitions and Dispositions.")
Financing Activities:
Cash flow provided by financing activities increased to $188.8 million, compared to cash used in financing activities of $200.7 million in 2007. The
increase in cash provided by financing activities was primarily attributed to the proceeds from the issuance of $950 million convertible senior notes in 2007 offset in part by the purchase of
$59.9 million for two Capped Calls in connection with the issuance, the repurchase of $75.0 million of common stock and an increase in the repayment of mortgage, bank and other notes
payable in 2007.
44
Liquidity and Capital Resources
The Company intends to meet its short term liquidity requirements through cash generated from operations, working capital reserves, property secured borrowings,
unsecured corporate borrowings and borrowings under the revolving line of credit. The Company anticipates that revenues will continue to provide necessary funds for its operating expenses and debt
service requirements, and to pay dividends to stockholders in accordance with REIT requirements. The Company anticipates that cash generated from operations, together with cash on hand, will be
adequate to fund capital expenditures which will not be reimbursed by tenants, other than non-recurring capital expenditures.
The
following tables summarize capital expenditures incurred at the Centers:
|
|
For the Three Months Ended March 31,
|
(Dollars in thousands)
|
|
2008
|
|
2007
|
Consolidated Centers:
|
|
|
|
|
|
|
Acquisitions of property and equipment
|
|
$
|
38,057
|
|
$
|
2,178
|
Development, redevelopment and expansion of Centers
|
|
|
89,115
|
|
|
84,308
|
Renovations of Centers
|
|
|
4,992
|
|
|
14,553
|
Tenant allowances
|
|
|
3,023
|
|
|
5,272
|
Deferred leasing charges
|
|
|
6,031
|
|
|
5,481
|
|
|
|
|
|
|
|
$
|
141,218
|
|
$
|
111,792
|
|
|
|
|
|
Joint Venture Centers (at Company's pro rata share) :
|
|
|
|
|
|
|
Acquisitions of property and equipment
|
|
$
|
262,271
|
|
$
|
529
|
Development, redevelopment and expansion of Centers
|
|
|
6,581
|
|
|
4,354
|
Renovations of Centers
|
|
|
5,544
|
|
|
2,170
|
Tenant allowances
|
|
|
2,082
|
|
|
2,530
|
Deferred leasing charges
|
|
|
1,608
|
|
|
1,033
|
|
|
|
|
|
|
|
$
|
278,086
|
|
$
|
10,616
|
|
|
|
|
|
Management
expects similar levels to be incurred in future years for tenant allowances and deferred leasing charges and to incur between $400 million to $600 million in 2008 for
development, redevelopment, expansion and renovations. Capital for major expenditures, developments and/or redevelopments has been, and is expected to continue to be, obtained from equity or debt
financings which include borrowings under the Company's line of credit and construction loans. However, many factors impact the Company's ability to access capital, such as its overall debt level,
interest rates, interest coverage ratios and prevailing market conditions.
The
Company's total outstanding loan indebtedness at March 31, 2008 was $7.7 billion (including $1.9 billion of its pro rata share of joint venture debt). This equated to a
debt to Total Market Capitalization (defined as total debt of the Company, including its pro rata share of joint venture debt, plus aggregate market value of outstanding shares of common stock,
assuming full conversion of OP Units, MACWH, LP units and preferred stock into common stock) ratio of approximately 55.2% at March 31, 2008. The majority of the Company's debt consists
of fixed-rate conventional mortgages payable collateralized by individual properties.
The
Company filed a shelf registration statement, effective June 6, 2002, to sell securities. The shelf registration is for a total of $1.0 billion of common stock, common stock warrants
or common stock rights. The Company sold a total of 15.2 million shares of common stock under this shelf registration on November 27, 2002. The aggregate offering price of this transaction was
approximately $440.2 million, leaving approximately $559.8 million available under the shelf registration statement. In addition, the Company filed another shelf registration statement, effective
October 27, 2003, to sell up
45
to
$300 million of preferred stock. On January 12, 2006, the Company filed a shelf registration statement registering an unspecified amount of common stock that it may offer in the future.
On
March 16, 2007, the Company issued $950 million in convertible senior notes ("Senior Notes") that mature on March 15, 2012. The Senior Notes bear interest at
3.25%, payable semiannually, are senior to unsecured debt of the Company and are guaranteed by the Operating Partnership. Prior to December 14, 2011, upon the occurrence of certain specified
events, the Senior Notes will be convertible at the option of holder into cash, shares of the Company's common stock or a combination of cash and shares of the Company's common stock, at the election
of the Company, at an initial conversion rate of 8.9702 shares per $1,000 principal amount. On and after December 15, 2011, the Senior Notes will be convertible at any time prior to the second
business day preceding the maturity date at the option of the holder at the initial conversion rate. The initial conversion price of approximately $111.48 per share represented a 20% premium over the
closing price of the Company's common stock on March 12, 2007. The initial conversion rate is subject to adjustment under certain circumstances. Holders of the Senior Notes do not have the
right to require the Company to repurchase the Senior Notes prior to maturity except in connection with the occurrence of certain fundamental change transactions.
In
connection with the issuance of the Senior Notes, the Company purchased two capped calls ("Capped Calls") from affiliates of the initial purchasers of the Senior Notes. The Capped
Calls effectively increase the conversion price of the Senior Notes to approximately $130.06, which represented a 40% premium to the March 12, 2007 closing price of $92.90 per common share of
the Company.
The
Company has a $1.5 billion revolving line of credit that matures on April 25, 2010 with a one-year extension option. The interest rate fluctuates between
LIBOR plus 0.75% to LIBOR plus 1.10% depending on the Company's overall leverage. In September 2006, the Company entered into an interest rate swap agreement that effectively fixed the interest rate
on $400.0 million of the outstanding balance of the line of credit at 6.23% until April 25, 2011. On March 16, 2007, the Company repaid $541.5 million of borrowings outstanding
from the proceeds of the Senior Notes (See Note 10Bank and Other Notes Payable of the Company's Consolidated Financial Statements). As of March 31, 2008 and
December 31, 2007, borrowings outstanding were $1,323.0 million and $1,015.0 million, respectively, at an average interest rate, net of the $400.0 million swapped portion,
of 3.72% and 6.19%, respectively.
On
April 25, 2005, the Company obtained a five-year, $450.0 million term loan bearing interest at LIBOR plus 1.50%. In November 2005, the Company entered into
an interest rate swap agreement that effectively fixed the interest rate of the $450.0 million term loan at 6.30% from December 1, 2005 to April 15, 2010. At March 31, 2008
and December 31, 2007, the entire loan was outstanding with an interest rate of 6.50%.
At
March 31, 2008, the Company was in compliance with all applicable loan covenants.
At
March 31, 2008, the Company had cash and cash equivalents available of $64.3 million.
Off-Balance Sheet Arrangements:
The Company has an ownership interest in a number of joint ventures as detailed in Note 4 to the Company's Consolidated Financial Statements included herein. The
Company accounts for those investments that it does not have a controlling interest or is not the primary beneficiary using the equity method of accounting and those investments are reflected on the
Consolidated Balance Sheets of the Company as "Investments in Unconsolidated Joint Ventures." A pro rata share of the mortgage debt on these properties is shown in "Item 3. Quantitative and
Qualitative Disclosure of Market Risk."
46
In
addition, certain joint ventures also have debt that could become recourse debt to the Company or its subsidiaries, in excess of the Company's pro rata share, should the joint
ventures be unable to discharge the obligations of the related debt.
The
following reflects the maximum amount of debt principal that could recourse to the Company at March 31, 2008 (in thousands):
Property
|
|
Recourse Debt
|
|
Maturity Date
|
Boulevard Shops
|
|
$
|
4,280
|
|
12/17/2010
|
Chandler Village Center
|
|
|
4,375
|
|
1/15/2011
|
|
|
|
|
|
|
|
$
|
8,655
|
|
|
|
|
|
|
|
Additionally,
as of March 31, 2008, the Company is contingently liable for $6.4 million in letters of credit guaranteeing performance by the Company of certain obligations
relating to the Centers. The Company does not believe that these letters of credit will result in any liability to the Company.
Long-term Contractual Obligations:
The following is a schedule of long-term contractual obligations as of March 31, 2008 for the consolidated Centers over the periods in which
they are expected to be paid (in thousands):
|
|
Payment Due by Period
|
Contractual Obligations
|
|
Total
|
|
Less than 1 year
|
|
1 - 3 years
|
|
3 - 5 years
|
|
More than five years
|
Long-term debt obligations (includes expected interest payments)
|
|
$
|
6,068,233
|
|
$
|
477,873
|
|
$
|
2,821,391
|
|
$
|
1,913,595
|
|
$
|
855,374
|
Operating lease obligations(1)
|
|
|
666,345
|
|
|
11,078
|
|
|
29,624
|
|
|
29,250
|
|
|
596,393
|
Purchase obligations(1)
|
|
|
82,202
|
|
|
82,202
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities(2)
|
|
|
358,840
|
|
|
358,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,175,620
|
|
$
|
929,993
|
|
$
|
2,851,015
|
|
$
|
1,942,845
|
|
$
|
1,451,767
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
See
Note 15Commitments and Contingencies of the Company's Consolidated Financial Statements.
-
(2)
-
Amount
includes $2,063 of unrecognized tax benefit associated with FIN 48.
Funds From Operations
The Company uses FFO in addition to net income to report its operating and financial results and considers FFO and FFO-diluted as supplemental
measures for the real estate industry and a supplement to GAAP measures. The National Association of Real Estate Investment Trusts ("NAREIT") defines FFO as net income (loss) computed in accordance
with GAAP, excluding gains (or losses) from extraordinary items and sales of depreciated operating properties, plus real estate related depreciation and amortization and after adjustments for
unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO on the same basis. FFO and FFO on a fully diluted basis are
useful to investors in comparing operating and financial results between periods. This is especially true since FFO excludes real estate depreciation and amortization as the Company believes real
estate values fluctuate based on market conditions rather than depreciating in value ratably on a straight-line basis over time. FFO on a fully diluted basis is one of the measures
investors find most useful in measuring the dilutive impact of outstanding convertible securities. FFO does not represent cash flow from operations as defined by
47
GAAP,
should not be considered as an alternative to net income as defined by GAAP and is not indicative of cash available to fund all cash flow needs. FFO, as presented, may not be comparable to
similarly titled measures reported by other real estate investment trusts. The reconciliation of FFO and FFO-diluted to net income available to common stockholders is provided below.
The
following reconciles net income available to common stockholders to FFO and FFO-diluted (dollars in thousands): update
|
|
For the Three Months Ended March 31,
|
|
|
|
2008
|
|
2007
|
|
Net incomeavailable to common stockholders
|
|
$
|
95,628
|
|
$
|
3,508
|
|
Adjustments to reconcile net income to FFObasic:
|
|
|
|
|
|
|
|
|
Minority interest in the Operating Partnership
|
|
|
16,598
|
|
|
638
|
|
|
Gain on sale of consolidated assets
|
|
|
(99,937
|
)
|
|
(1,463
|
)
|
|
Add: minority interest share of gain on sale of consolidated joint ventures
|
|
|
341
|
|
|
837
|
|
|
Gain on undepreciated consolidated assets
|
|
|
333
|
|
|
881
|
|
|
(Gain) loss on sale of assets from unconsolidated entities (pro rata)
|
|
|
(1,319
|
)
|
|
2,382
|
|
|
Add: gain on undepreciated assets on unconsolidated assets (pro rata)
|
|
|
1,319
|
|
|
|
|
|
Depreciation and amortization on consolidated assets
|
|
|
61,128
|
|
|
55,974
|
|
|
Less: depreciation and amortization allocable to minority interests on consolidated joint ventures
|
|
|
(573
|
)
|
|
(994
|
)
|
|
Depreciation and amortization on joint ventures (pro rata)
|
|
|
22,279
|
|
|
24,388
|
|
|
Less: depreciation on personal property and amortization of loan costs and interest rate caps
|
|
|
(2,243
|
)
|
|
(3,658
|
)
|
|
|
|
|
|
|
FFObasic
|
|
|
93,554
|
|
|
82,493
|
|
Additional adjustments to arrive at FFOdiluted:
|
|
|
|
|
|
|
|
|
Impact of convertible preferred stock
|
|
|
2,454
|
|
|
2,575
|
|
|
|
|
|
|
|
FFOdiluted
|
|
$
|
96,008
|
|
$
|
85,068
|
|
|
|
|
|
|
|
Weighted average number of FFO shares outstanding for:
|
|
|
|
|
|
|
|
FFObasic(1)
|
|
|
84,895
|
|
|
84,722
|
|
Adjustments for the impact of dilutive securities in computing FFO-diluted:
|
|
|
|
|
|
|
|
|
Convertible preferred stock
|
|
|
3,067
|
|
|
3,627
|
|
|
Share and unit-based compensation plans
|
|
|
328
|
|
|
312
|
|
|
|
|
|
|
|
FFOdiluted(2)
|
|
|
88,290
|
|
|
88,661
|
|
|
|
|
|
|
|
-
(1)
-
Calculated
based upon basic net income as adjusted to reach basic FFO. As of March 31, 2008 and 2007, 12.6 million and 12.8 million OP Units were outstanding,
respectively.
-
(2)
-
The
computation of FFOdiluted shares outstanding includes the effect of share and unit-based compensation plans and the Senior Notes using the treasury stock
method. It also assumes the conversion of MACWH, LP common and preferred units to the extent that they are dilutive to the FFO computation. On October 18, 2007, 0.6 million shares
of Series A Preferred Stock were converted into common shares. The preferred stock can be converted on a one-for-one basis for common stock. The then outstanding
preferred shares are assumed converted for purposes of FFO-diluted as they are dilutive to that calculation. The MACWH, LP preferred units were antidilutive to the calculations at
March 31, 2008 and 2007 and were not included in the above calculations.
48
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company's primary market risk exposure is interest rate risk. The Company has managed and will continue to manage interest rate risk by (1) maintaining a
ratio of fixed rate, long-term debt to total debt such that floating rate exposure is kept at an acceptable level, (2) reducing interest rate exposure on certain long-term
floating rate debt through the use of interest rate caps and/or swaps with appropriately matching maturities, (3) using treasury rate locks where appropriate to fix rates on anticipated debt
transactions, and (4) taking advantage of favorable market conditions for long-term debt and/or equity.
The
following table sets forth information as of March 31, 2008 concerning the Company's long term debt obligations, including principal cash flows by scheduled maturity, weighted
average interest rates and estimated fair value ("FV") (dollars in thousands):
|
|
For the years ending March 31,
|
|
|
|
|
|
|
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
Thereafter
|
|
Total
|
|
FV
|
CONSOLIDATED CENTERS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate(1)
|
|
$
|
418,360
|
|
$
|
203,904
|
|
$
|
1,303,052
|
|
$
|
430,672
|
|
$
|
1,394,932
|
|
$
|
809,810
|
|
$
|
4,560,730
|
|
$
|
4,566,092
|
|
Average interest rate
|
|
|
6.75
|
%
|
|
5.34
|
%
|
|
6.22
|
%
|
|
5.88
|
%
|
|
4.49
|
%
|
|
5.63
|
%
|
|
5.60
|
%
|
|
|
|
Floating rate
|
|
|
30,000
|
|
|
253,332
|
|
|
923,636
|
|
|
|
|
|
|
|
|
|
|
|
1,206,968
|
|
|
1,206,968
|
|
Average interest rate
|
|
|
4.20
|
%
|
|
4.39
|
%
|
|
3.72
|
%
|
|
|
|
|
|
|
|
|
|
|
3.80
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debtConsolidated Centers
|
|
$
|
448,360
|
|
$
|
457,236
|
|
$
|
2,226,688
|
|
$
|
430,672
|
|
$
|
1,394,932
|
|
$
|
809,810
|
|
$
|
5,767,698
|
|
$
|
5,773,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JOINT VENTURE CENTERS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term debt (at Company's pro rata share):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
$
|
161,712
|
|
$
|
247,352
|
|
$
|
121,966
|
|
$
|
33,095
|
|
$
|
201,228
|
|
$
|
958,267
|
|
$
|
1,723,620
|
|
$
|
1,767,010
|
|
Average interest rate
|
|
|
5.81
|
%
|
|
5.39
|
%
|
|
6.79
|
%
|
|
6.12
|
%
|
|
6.76
|
%
|
|
5.57
|
%
|
|
5.81
|
%
|
|
|
|
Floating rate
|
|
|
103,056
|
|
|
|
|
|
85,643
|
|
|
|
|
|
|
|
|
3,240
|
|
|
191,939
|
|
|
191,939
|
|
Average interest rate
|
|
|
3.89
|
%
|
|
|
|
|
3.80
|
%
|
|
|
|
|
|
|
|
8.02
|
%
|
|
3.92
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debtJoint Venture Centers
|
|
$
|
264,768
|
|
$
|
247,352
|
|
$
|
207,609
|
|
$
|
33,095
|
|
$
|
201,228
|
|
$
|
961,507
|
|
$
|
1,915,559
|
|
$
|
1,958,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Fixed
rate debt includes the $450 million floating rate term note and $400 million of the line of credit balance. These amounts have effective fixed rates over the
remaining terms due to swap agreements as discussed below.
The consolidated Centers' total fixed rate debt at March 31, 2008 and December 31, 2007 was $4.6 billion and
$4.8 billion, respectively. The average interest rate on fixed rate debt at March 31, 2008 and December 31, 2007 was 5.60% and 5.57%, respectively. The consolidated Centers' total
floating rate debt at March 31, 2008 and December 31, 2007 was $1.2 billion and $1.0 billion, respectively. The average interest rate on floating rate debt at March 31,
2008 and December 31, 2007 was 3.80% and 6.15%, respectively.
The
Company's pro rata share of the Joint Venture Centers' fixed rate debt at March 31, 2008 and December 31, 2007 was $1.7 billion and $1.6 billion,
respectively. The average interest rate on fixed rate debt at March 31, 2008 and December 31, 2007 was 5.81% and 5.89%, respectively. The Company's pro rata share of the Joint Venture
Centers' floating rate debt at March 31, 2008 and December 31, 2007 was $191.9 million and $195.0 million, respectively. The average interest rate on the floating rate debt at
March 31, 2008 and December 31, 2007 was 3.92% and 6.09%, respectively.
The
Company uses derivative financial instruments in the normal course of business to manage or hedge interest rate risk and records all derivatives on the balance sheet at fair value in
accordance with SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" (See "Note 5Derivative Instruments and Hedging Activities" of the Company's
Consolidated Financial Statements).
49
The
following are outstanding derivatives at March 31, 2008 (amounts in thousands):
Property/Entity
|
|
Notional Amount
|
|
Product
|
|
Rate
|
|
Maturity
|
|
Company's Ownership
|
|
Fair Value(1)
|
|
Camelback Colonnade
|
|
$
|
41,500
|
|
Cap
|
|
8.54
|
%
|
11/15/2008
|
|
75
|
%
|
$
|
|
|
La Cumbre Plaza
|
|
|
30,000
|
|
Cap
|
|
7.12
|
%
|
8/9/2008
|
|
100
|
%
|
|
|
|
Metrocenter Mall
|
|
|
37,380
|
|
Cap
|
|
7.25
|
%
|
2/15/2009
|
|
15
|
%
|
|
|
|
Metrocenter Mall
|
|
|
11,500
|
|
Cap
|
|
5.25
|
%
|
2/15/2009
|
|
15
|
%
|
|
|
|
Panorama Mall
|
|
|
50,000
|
|
Cap
|
|
6.65
|
%
|
3/1/2009
|
|
100
|
%
|
|
2
|
|
Superstition Springs Center
|
|
|
67,500
|
|
Cap
|
|
8.63
|
%
|
9/9/2008
|
|
33.33
|
%
|
|
|
|
Metrocenter Mall
|
|
|
112,000
|
|
Swap
|
|
3.86
|
%
|
2/15/2009
|
|
15
|
%
|
|
(403
|
)
|
The Operating Partnership
|
|
|
450,000
|
|
Swap
|
|
4.80
|
%
|
4/15/2010
|
|
100
|
%
|
|
(22,303
|
)
|
The Operating Partnership
|
|
|
400,000
|
|
Swap
|
|
5.08
|
%
|
4/25/2011
|
|
100
|
%
|
|
(28,806
|
)
|
Desert Sky Mall
|
|
|
51,500
|
|
Cap
|
|
7.65
|
%
|
3/15/2009
|
|
50
|
%
|
|
|
|
-
(1)
-
Fair
value at the Company's ownership percentage.
Interest
rate cap agreements ("Cap") offer protection against floating rates on the notional amount from exceeding the rates noted in the above schedule and interest rate swap agreements
("Swap") effectively replace a floating rate on the notional amount with a fixed rate as noted above.
In
addition, the Company has assessed the market risk for its floating rate debt and believes that a 1% increase in interest rates would decrease future earnings and cash flows by
approximately $14.0 million per year based on $1.4 billion outstanding of floating rate debt at March 31, 2008.
The
fair value of the Company's long-term debt is estimated based on discounted cash flows at interest rates that management believes reflect the risks associated with
long-term debt of similar risk and duration.
Item 4. Controls and Procedures
Management, including our Chief Executive Officer and Chief Financial Officer, does not expect that its disclosure controls and procedures or its internal
controls over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to
their cost. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the
Company have been detected.
However,
based on their evaluation as of March 31, 2008, the Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls
and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective to ensure that the information required to be disclosed by the Company
in the reports that it files or submits under the Securities Exchange Act of 1934 is (a) recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and
forms and (b) is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosure.
In
addition, there has been no change in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange
Act) that occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
50
PART II OTHER INFORMATION
Item 1. Legal Proceedings
None of the Company, the Operating Partnership, Macerich Property Management Company, LLC, Macerich Management Company, the Westcor Management Companies,
the Wilmorite Management Companies or their respective subsidiaries are currently involved in any material litigation nor, to the Company's knowledge, is any material litigation currently threatened
against such entities or the Centers, other than routine litigation arising in the ordinary course of business, most of which is expected to be covered by liability insurance.
Item 1A. Risk Factors
There have been no material changes to the risk factors relating to the Company set forth under the caption "Item 1A. Risk Factors" in the Company's Annual
Report on Form 10-K for the year ended December 31, 2007.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
51
Item 6. Exhibits
3.1*
|
|
Articles of Amendment and Restatement of the Company
|
3.1.1**
|
|
Articles Supplementary of the Company
|
3.1.2***
|
|
Articles Supplementary of the Company (Series A Preferred Stock)
|
3.1.3****
|
|
Articles Supplementary of the Company (Series C Junior Participating Preferred Stock)
|
3.1.4*****
|
|
Articles Supplementary of the Company (Series D Preferred Stock)
|
3.1.5#
|
|
Articles Supplementary of the Company (reclassification of shares)
|
3.2##
|
|
Amended and Restated By-Laws of the Company, as adopted on February 8, 2007
|
4.1###
|
|
Form of Common Stock Certificate
|
4.2####
|
|
Form of Preferred Stock Certificate (Series A Preferred Stock)
|
4.2.1###
|
|
Form of Preferred Stock/Right Certificate (Series C Junior Participating Preferred Stock)
|
4.2.2#####
|
|
Form of Preferred Stock Certificate (Series D Preferred Stock)
|
4.3###
|
|
Agreement dated as of November 10, 1998 between the Company and Computershare Investor Services as successor to EquiServe Trust Company, N.A., as successor to First Chicago Trust Company of New York, as Rights Agent
|
4.4#*
|
|
Indenture, dated as of March 16, 2007, among the Company, the Operating Partnership and Deutsche Bank Trust Company Americas (includes form of the Notes and Guarantee)
|
10.1
|
|
Description of Director and Executive Officer Compensation Arrangements(1)
|
10.2
|
|
Form of Employee Stock Appreciation Right Agreement (2008)(1)
|
10.3
|
|
Form of LTIP Award Agreement (Service-Based-2008)(1)
|
31.1
|
|
Section 302 Certification of Arthur Coppola, Chief Executive Officer
|
31.2
|
|
Section 302 Certification of Thomas O'Hern, Chief Financial Officer
|
32.1
|
|
Section 906 Certification of Arthur Coppola, Chief Executive Officer, and Thomas O'Hern, Chief Financial Officer
|
*
|
|
Previously filed as an exhibit to the Company's Registration Statement on Form S-11, as amended (No. 33-68964), and incorporated herein by reference.
|
**
|
|
Previously filed as an exhibit to the Company's Current Report on Form 8-K, event date May 30, 1995, and incorporated herein by reference.
|
***
|
|
Previously filed as an exhibit to the Company's Current Report on Form 8-K, event date February 25, 1998, and incorporated herein by reference.
|
****
|
|
Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1998, and incorporated herein by reference.
|
*****
|
|
Previously filed as an exhibit to the Company's Current Report on Form 8-K, event date July 26, 2002, and incorporated herein by reference.
|
52
#
|
|
Previously filed as an exhibit to the Company's Registration Statement on Form S-3, as amended (No. 333-88718), and incorporated herein by reference.
|
##
|
|
Previously filed as an exhibit to the Company's Current Report on Form 8-K, event date February 8, 2007, and incorporated herein by reference.
|
###
|
|
Previously filed as an exhibit to the Company's Current Report on Form 8-K, event date November 10, 1998, as amended, and incorporated herein by reference.
|
####
|
|
Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1997, and incorporated herein by reference.
|
#####
|
|
Previously filed as an exhibit to the Company's Registration Statement on Form S-3 (No. 333-107063), and incorporated herein by reference.
|
#*
|
|
Previously filed as an exhibit to the Company's Current Report on Form 8-K, event date March 16, 2007, and incorporated herein by reference.
|
(1)
|
|
Represents a management contract, or compensatory plan, contract or arrangement required to be filed pursuant to Regulation S-K.
|
53
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
|
|
THE MACERICH COMPANY
|
|
|
By:
|
/s/
THOMAS E. O'HERN
Thomas E. O'Hern
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
|
Date:
May 19, 2008
54
QuickLinks
Explanatory Note
THE MACERICH COMPANY CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share amounts) (Unaudited)
THE MACERICH COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except share and per share amounts) (Unaudited)
THE MACERICH COMPANY CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY (Dollars in thousands, except per share data) (Unaudited)
THE MACERICH COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited)
THE MACERICH COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (Unaudited)
PART II OTHER INFORMATION
Signature
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